July 27, 2021
John B. Mugford

MOBs continue to perform well, with occupancy in top 50 markets rising to 91.7%

MOBs continue to perform well even. 

In the latest MOB statistics compiled by Revista, the occupancy rate and the absorption of space in MOBs larger than 7,500 square feet and located in the country’s top 50 metropolitan areas increased in the second quarter (2Q) 2021. 

According to Mike Hargrave, principal with Revista, the occupancy rate increased from 91.4 percent in 1Q to 91.7 percent in 2Q. At the same time, 4.4 million square feet of space was absorbed in 2Q, up from less than 2 million square feet in 1Q and up about 390 percent from back in 2Q 2020, which was the early days of the COVID-19 pandemic. 

“As the pandemic unfolded, absorption grew weak in the ensuing quarters of 2020,” Hargrave said during the recent Revista Second Quarter 2021 Subscriber Webcast. 

“In fact, in the third quarter of 2020 (absorption) was below a million square feet, about 900,000 square feet. Absorption has been picking up since then, and we’ve seen a very strong second quarter of 2021.” 

Hargrave and another Revista principal, Hilda Martin, presented a wide variety of up-to-date HRE and MOB data during the recent webcast. 

For many professionals involved in MOBs, perhaps one of the most-anticipated statistics released by Revista during the webcast had to do with the sales volume. 

According to Martin, MOB sales totaled $2.4 billion in 2Q, which followed a 1Q1 in which sales totaled $2 billion. With the first-half 2021 volume standing at $4.4 billion, the sector’s streak of seeing sales top $10 billion in each of the last five years could be in jeopardy. 

However, Martin noted that Revista’s 2Q volume could be revised upward as more sales come to light. One must also remember that the MOB sales volume was quite low after the onset of the pandemic in early 2020, with quarterly sales hovering around $2 billion, until a strong 4Q saw sales totaling $4.1 billion and capped off a year in the total volume was $11.6 billion. 

“This time last year, obviously, we were just finishing a quarter that was thoroughly in the thick of COVID and shutdowns,” Martin said during the webcast. “But in the second quarter of this year, we are well above that quarter (2Q 2020) in terms of closings, though sales were still not as intense as the fourth quarter (of 2020) when we had over $4 billion close.” 

With demand for MOBs remaining as strong as ever from a wide range of investors, cap rates remain low. According to Revista data, the median cap rate for MOB sales in 2Q was 6.1 percent on a trailing 12-month (TTM) basis, which is in keeping with the average cap rate of between 5.9 percent and 6.2 percent over the last nine quarters. 

The average cap rate among the top 75 percent of deals was 5.4 percent in 2Q on a TTM basis. 

“There’s so much money that’s waiting to (invest in MOBs),” Ms. Martin said. “There are a lot of groups that have raised funds and they have mandates to acquire MOBs. We’re likely going going to see more activity throughout the remainder of the year.” 

When it comes to who’s investing in MOBs, private equity firms continue to dominate the buyer pool, according to Revista data. However, the country’s healthcare-focused real estate investment trusts (REITs) did, after several quarters of taking a step back, did make a strong comeback in 2Q. 

Revista data indicates that private investors accounted for 53 percent of the purchases, by dollar volume, in 2Q, which was down from 74 percent in Q1 and a quarterly range of between 63 percent and 75 percent in 2020. 

As noted, the REITs had a strong 2Q, accounting for 35 percent of all MOB investing during the quarter. That was a strong rebound from much of 2020, when the REITs’ accounted for just 6 percent of all MOB purchases in 2Q 2020 as a low point and, as a high point, 24 percent of the MOB volume in 4Q. 

“Private equity has been really dominating (MOB sales acquisitions in recent quarters), but the REITs are coming back in and becoming more acquisitive,” Ms. Martin said, noting that Denver-based Healthpeak Inc. (NYSE: PEAK) made a $371 million purchase in April. “A number of the REITs made acquisitions in the second quarter, so we will continue to monitor that and see how things shift throughout the rest of this year.” 

John B. Mugford
Healthcare Real EstateInsights
Phone | 952.210.5840