Medical Office Is Not Office. The Numbers Prove It.

When investors hear "office," many think of half-empty downtown towers and hybrid work. Medical outpatient buildings (MOBs) sit in a different market. The tenant is a physician group, an imaging center or a surgery practice, and the patient has to show up in person.

The pricing reflects that. CBRE reports an average MOB cap rate of 7.1% in 2Q 2026, against 7.7% for traditional office. The average MOB sale price was $307 per square foot, 57% above the $196 average for traditional office (CBRE, 2Q26). Since 1Q 2021, MOB rents have risen 8.6% and traditional office rents 6.9% (CBRE, 2Q26).

Occupancy has been steady for a long time. Revista reports MOB occupancy between 91.5% and 92.5% since 2018 (Revista, February 2026), and JLL puts it at a record 92.7% at the end of 2025 (JLL, March 2026). CBRE's broader 59-market set shows 9.8% vacancy in 2Q 2026 (CBRE, 2Q26). As Jeff Axley, Managing Principal, Ridgeline Capital Partners, puts it: "For the past couple decades, Medical office has always been around 92%. It just is pretty steady."

A traditional office tenant cuts its footprint when its employees work from home. A clinical practice still needs exam rooms, equipment and patients in the building. For a medical tenant, the space is where the revenue is produced.

The buildings differ too. Jeff describes a typical MOB as 40,000 to 50,000 square feet, with five to ten tenants. Those tenants invest heavily in their own build-outs, which makes them slower to leave.

Health systems are a growing share of the tenant base. JLL reports that hospital systems signed 46% of the MOB leases it tracked in 2025 (JLL, March 2026). That brings larger tenants into the sector, along with a different kind of credit risk that we will cover in a future issue.

The pitch for converting vacant office into medical space sounds simple. Jeff summarizes it this way: "Buy it cheap, you know, throw in medical, you know, all of a sudden you have an arbitrage and higher rents." He then adds that in practice it is far from easy.

The obstacles are physical, and Jeff names four. The first is size: a typical MOB runs 40,000 to 50,000 square feet, so a 100,000-square-foot office building is a lot of medical space in one location. The second is power and HVAC: many medical uses need heavier power and better air handling than office systems were designed for. The third is the floor plate: medical layouts need floor plates of at least 15,000 square feet. The fourth is tenant fit: in his view, the conversions that work best are single-tenant buildings.

Leasing brokers we speak with add parking and tenant-improvement costs to that list, and describe converting an all-office building to medical use as a heavy lift.

Conversions are real, and they are growing. CBRE reports that retail properties account for 43% of MOB conversions and traditional office buildings for 42%. CBRE projects that conversions will reach a record 5.5% of all healthcare construction in 2026 (CBRE Midyear Review, August 2026).

That is still a small slice of a small pipeline. CBRE reports MOB completions of 439,000 square feet in 2Q 2026, 76% below the five-year quarterly average (CBRE, 2Q26). Conversions add space at the margin, mostly in buildings that already suit medical use. They are not a wave of supply that threatens occupancy across the sector.

The main risk in a medical building is the tenant who is not medical. Administrative and other non-clinical tenants act like commodity office users. They are rate-driven and will move for cheaper space, so a rent roll heavy with them carries office risk under a medical label. That is why we track how much of every rent roll they make up.

The second risk is the conversion itself. An investor who buys an office building on the arbitrage pitch owns the size, power, HVAC and floor-plate problems described above, and the parking and tenant-improvement costs on top of them.

Judge a medical building on its own rent roll, not on headlines about office. The label is shared. The tenants, the leases and the cash flows are not.

MARKET SIGNALS

Cap rates. The average MOB cap rate was 7.1% in 2Q 2026, against 7.7% for traditional office (CBRE, 2Q26).

Pricing. MOBs sold for an average of $307 per square foot in 2Q 2026, 57% above the $196 average for traditional office (CBRE, 2Q26).

Conversions. Office buildings account for 42% of MOB conversions, and CBRE projects conversions at a record 5.5% of healthcare construction in 2026 (CBRE Midyear Review, August 2026).

A medical outpatient building (MOB) is leased to clinical tenants, such as physician groups, imaging centers and surgery practices, whose patients have to show up in person. A traditional office tenant cuts its footprint when employees work from home. A clinical practice still needs exam rooms, equipment and patients in the building, where its revenue is produced.

The average MOB cap rate was 7.1% in 2Q 2026, against 7.7% for traditional office (CBRE, 2Q26). Medical outpatient buildings sold for an average of $307 per square foot in the same quarter, 57% above the $196 average for traditional office (CBRE, 2Q26). Since 1Q 2021, MOB rents have risen 8.6% and traditional office rents 6.9% (CBRE, 2Q26).

Conversions are growing but remain a small share of construction. CBRE reports that traditional office buildings account for 42% of MOB conversions and retail properties for 43%, and projects conversions at a record 5.5% of all healthcare construction in 2026 (CBRE Midyear Review, August 2026). They add space at the margin, mostly in buildings that already suit medical use.

The biggest risk in a medical office building is the tenant who is not medical. Administrative and other non-clinical tenants act like commodity office users: they are rate-driven and will move for cheaper space. A rent roll heavy with them carries office risk under a medical label, so Ridgeline tracks their share of every rent roll.

For informational purposes only. Not an offer to sell or a solicitation of an offer to buy any security; any offer is made only through confidential offering documents. Projections are not guarantees of future results.