The Two-Ton Reason Doctors Don't Move

Medical tenants put their own money into their space. Exam rooms, plumbing, heavier power and better HVAC cost more to build than a standard office suite, and landlord allowances do not always cover all of it.

Jeff illustrates the point with a hypothetical. A doctor group receives a tenant-improvement allowance of $50 per square foot, but the build-out costs $150 per square foot, so the group funds the other $100 itself. On a 5,000-square-foot suite, that is a sum no practice wants to walk away from. The numbers are illustrative, not drawn from a specific lease. HCO News, citing JLL, reports an average all-in fit-out cost for medical outpatient space of $412 per square foot in 2026 (HCO News, March 2026).

Some uses raise the stakes further. Imaging centers and radiation oncology practices install MRI magnets and linear-accelerator vaults that are costly to replicate.

Jeff describes the imaging case directly: "Tenants imaging the MRI magnet like a two ton magnet in their space. That's extremely, it costs six figures for them to move, relocate to another building. That's, that's switching costs and pricing power you can achieve." The six-figure cost is his estimate.

Commodity office works differently. A traditional office tenant moves across the street for a slightly lower rent at little out-of-pocket cost. A practice with heavy equipment and a custom build-out does not reproduce its space at the same cost, or at the same rent.

The building is also where patients know to find their doctor. Jeff notes that many tenants prefer multi-tenant buildings because of patient referrals, especially when a primary care group is in the building. A specialist who moves away from that referral source risks losing volume.

Geography works the same way. When we underwrite a renewal, Jeff's checklist goes past the lease: why the practice is there, its insurance contracts and payer mix, where its patients come from, and whether the location is convenient to where the doctors live. The goal is to understand the probability of renewal before relying on it.

New space is also expensive. JLL reports that rents on new MOB construction run at nearly twice in-place rents, over $40 per square foot against an average in the mid-$20s (JLL, March 2026). For many practices, leaving means paying more, not less.

No industry-wide MOB tenant retention rate is publicly available. The best public figures come from listed REITs, and each one defines retention its own way.

Healthcare Realty reported tenant retention of 88.5% in 2Q 2026, with 4.8% cash leasing spreads, and does not define retention in its release (Healthcare Realty, July 2026). Management said retention has averaged nearly 90% over the past four quarters (MarketBeat, July 2026).

Healthpeak management cited 80% outpatient medical tenant retention and 5% cash re-leasing spreads in 2Q 2026 on its earnings call (Healthpeak earnings call transcript, August 2026).

Those numbers are consistent with sticky tenants. They are not a sector benchmark, and they are not directly comparable with each other.

Switching costs do not hold a tenant that consolidates or follows its health system. Practices consolidate when labor and insurance costs rise. A health-system tenant leaves a building with years of lease term remaining when a rival system opens a campus nearby.

The decision-maker is changing too. JLL reports that the share of physicians in private practice fell from 60% in 2012 to 42% in 2024 (JLL, March 2026), so more renewal decisions are made by a health system rather than by the doctors in the suite. Administrative tenants with no clinical build-out behave like ordinary office tenants. Switching costs protect the clinical rent roll, not every square foot in the building.

MARKET SIGNALS

REIT retention. Healthcare Realty reported 88.5% tenant retention and 4.8% cash leasing spreads in 2Q 2026 (Healthcare Realty, July 2026).

Re-leasing spreads. Healthpeak management cited 80% outpatient medical retention and 5% cash re-leasing spreads in 2Q 2026 (Healthpeak earnings call, August 2026).

Who decides. The share of physicians in private practice fell from 60% in 2012 to 42% in 2024 (JLL, March 2026).

Switching costs are what a medical tenant loses by moving: tenant-funded build-outs, specialized equipment such as MRI magnets, referral relationships and the geography of its patient panel. They are the main source of a medical landlord's pricing power. A traditional office tenant, by contrast, moves across the street for a slightly lower rent at little out-of-pocket cost.

By Jeff Axley's estimate, relocating an imaging tenant's MRI magnet, which he describes as a two-ton magnet, costs six figures. Imaging centers and radiation oncology practices install MRI magnets and linear-accelerator vaults that are costly to replicate, so a practice with heavy equipment does not reproduce its space at the same cost or at the same rent.

A tenant improvement (TI) allowance is the landlord's contribution to a tenant's build-out, and in medical space it does not always cover the full cost. In Jeff Axley's illustrative example, a doctor group receives $50 per square foot, the build-out costs $150, and the group funds the other $100 itself. Exam rooms, plumbing and heavier power drive that cost.

Increasingly, a health system makes the renewal decision rather than the doctors in the suite. JLL reports that the share of physicians in private practice fell from 60% in 2012 to 42% in 2024 (JLL, March 2026). A practice that consolidates or follows its health system can leave a building regardless of its switching costs.

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.