By Chip Conk
During the first quarter of this year, we understandably received questions about how global macroeconomic uncertainties may affect medical office real estate. When the quarter began, many analysts were heralding 2025 as “the year of the MOB,” reflecting their confidence in several signs indicating that acquisition volume would escalate throughout the year.
By the end of the quarter, due to economic factors unrelated to the medical real estate field, some of this early exuberance had waned. The uncertainty over on-again, off-again tariffs during Q1 and the first month of Q2 produced the stock market swings we saw in the US and internationally. Some analysts now predict a recession will begin later this year. Others suggest we may be in for a period of stagflation.
While we will not speculate about either of those possible scenarios, I can confidently forecast that medical office real estate will continue to perform at a high level.
Certainty and predictability have been the dominant qualities associated with medical real estate over the past 20 years. Medical offices have demonstrated resilience through two major economic downturns, first during the Great Recession of 2007-8 and again amid the COVID-19 pandemic of 2020-21. Because healthcare delivery is locally focused, the sector is less affected than others by tariff policy. This class not only survived but thrived during times when other real estate sectors struggled.
In fact, the fundamentals that have driven the field’s performance are as strong as ever, if not stronger.
Nationwide, MOB occupancy rates reached 92.8% during Q1. Demand for new outpatient medical properties continues to outpace supply. Rents for these properties continue to rise. Portfolio offerings, which all but disappeared in a higher interest-rate environment, are appearing again.
Investors are eager to deploy capital they have kept on the sidelines during the past two years—and, as in the past, they are recognizing medical office properties as a safe haven. During Q1 we continued to see growing interest from large international investors, including sovereign wealth funds, ranging from Asia to the Middle East to Canada.
Meanwhile, the economic environment we have seen so far in 2025 also creates new opportunities. Because of volatility in the debt markets, for example, we are seeing some of the lowest interest rates in the past three years. Those lower rates create openings for investors such as Montecito to reduce borrowing costs by locking in debt at lower rates and recapping debt prices.
The current uncertainties for investors in many asset classes bring us back to the truth we recognized when Montecito first began acquiring medical office properties. Our industry’s fundamentals are solid, and we believe that the rest of 2025 remains ripe with opportunity for both medical office sellers and investors. Chip Conk is CEO of Montecito Medical
