Medical office buildings (MOBs) house physician practices, outpatient clinics, imaging, dialysis, surgery centers and other ambulatory care. Healthcare demand and the cost of medical buildouts make these tenants less likely to move than ordinary office users, which is why MOBs attract income investors. Whether a particular MOB is backed by investment grade credit depends on who signs the lease. This guide covers the demand drivers, lease structures, how to underwrite a building, and the risks. For the rating scale, see the investment grade guide.
Demand Drivers
- Healthcare spending: according to the Centers for Medicare & Medicaid Services, U.S. health spending grew 7.2% in 2024 to $5.3 trillion, or 18.0% of gross domestic product.
- An aging population: the Census Bureau projects the population age 65 and older will keep growing for decades, and older adults use more outpatient care.
- The shift to outpatient care: procedures that once required a hospital stay are increasingly done in ambulatory settings, supporting demand for clinics and surgery centers away from hospital campuses.
- Retail locations: providers increasingly lease former retail space for its visibility, parking and convenience.
Tenant Credit: When Is an MOB Investment Grade?
A building is backed by investment grade credit only if its tenant or lease guarantor is rated BBB‑/Baa3 or higher. Examples from our ratings database:
| Tenant | S&P / Moody’s | Status |
|---|---|---|
| Quest Diagnostics | BBB+/Baa1 | Investment Grade |
| Labcorp | no verified rating | Not Yet Verified |
| HCA Healthcare | BBB | Investment Grade |
| Fresenius Medical Care | BBB-/Baa3 | Investment Grade |
| DaVita | BB | Below Investment Grade |
| Encompass Health | BB | Below Investment Grade |
| Concentra | BB | Below Investment Grade |
Many medical tenants are physician groups or private companies with no public rating, and leases are often signed by a subsidiary or local operating entity rather than the rated parent. Hospital systems are frequently rated, often through their municipal bond ratings; confirm the entity and any guarantee. Check current ratings in the tenant ratings database.
Lease Structures
Single-tenant MOBs and clinics are often leased triple net, with the tenant paying taxes, insurance and maintenance. Multi-tenant MOBs more often use modified gross or expense-stop leases, where the landlord pays some operating costs and recovers increases. Rent increases are usually fixed annual bumps or periodic step-ups; read the lease rather than assuming an inflation hedge. Lease terms vary widely, from short leases for small practices to long leases for health systems and surgery centers.
How to Underwrite a Medical Office Building
- Location: on-campus buildings benefit from proximity to a hospital but may be subject to ground leases and restrictions; off-campus buildings depend on access, visibility, parking and local population growth.
- Tenant and specialty: the operator’s financial strength, its specialty and reimbursement exposure, and how much it has invested in the space.
- Building systems: medical tenants need more power, plumbing and HVAC capacity than standard office users, which affects re-leasing and capital costs.
- Local market: the competitive position of area health systems and any certificate of need rules that limit new facilities.
- Rollover: for multi-tenant buildings, the lease expiration schedule and the cost to re-lease medical space.
Risks
- Reimbursement: changes in Medicare, Medicaid or commercial insurance payments can strain operators.
- Operator consolidation and failure: practice acquisitions, mergers and bankruptcies can change who occupies the space.
- Specialized space: a building designed for one use can be costly to convert.
- Interest rates: like other income property, MOB values fall when long-term rates rise; the 10-year Treasury yield is 5.24% as of October 1, 2026.
Evaluating a Medical Office or Healthcare Net Lease?
We can review the tenant’s credit, the lease and pricing against current listings. On the majority of transactions, there is no separate fee to you as the buyer for representation; the listing broker pays a cooperating commission.
Frequently Asked Questions
Are medical office buildings considered investment grade real estate?
Some are. A medical office building is backed by investment grade credit only if its tenant or lease guarantor carries an investment grade rating, as many large health systems and lab companies do. Several common medical tenants are rated below investment grade, including DaVita (BB at S&P) and Concentra (BB), while HCA Healthcare is rated BBB. Check the rating of the entity that signs the lease.
What cap rates do medical office buildings trade at?
Cap rates vary with the tenant’s credit, location on or off a hospital campus, lease term, and whether the building is single or multi-tenant. On-campus buildings leased to strong health systems generally price at lower cap rates than off-campus or multi-tenant buildings with more rollover risk. Ask for recent comparable sales in the specific market.
What drives long-term demand for healthcare real estate?
An aging population, rising health spending (18.0% of GDP in 2024, according to CMS), and the shift of care from hospitals to outpatient settings such as dialysis, orthopedics, physical therapy and imaging.
Educational content only. InvestmentGrade.com is a commercial real estate brokerage and educational publisher. We do not sell, broker, underwrite, or solicit any bonds, securities, or investment products. Yields, ratings, and prices referenced fluctuate continuously and are sourced from public market data as of the date noted. Nothing on this page constitutes investment advice, an offer to sell, or a solicitation to buy any security. Consult a licensed broker-dealer, registered investment advisor, or tax professional before making any investment decision. For SEC investor education, visit investor.gov.
