A medical office building is a commercial property type leased to healthcare providers for outpatient clinical use, including physician practices, imaging, dialysis, and ambulatory surgery. Often shortened to MOB or medical outpatient building, it carries plumbing, power, and layout for exam and procedure rooms. Tenant stickiness and healthcare demand drive its value.
How a Medical Office Building Works
A medical office building works by leasing purpose-built clinical suites to healthcare tenants on long triple-net terms, so the tenant pays taxes, insurance, and operating costs on top of base rent. Per JLL and Revista data, average U.S. medical office NNN rent reached about $25.35 per square foot in the second quarter of 2025.
Location relative to a hospital campus shapes economics. On-campus and hospital-affiliated buildings benefit from referral networks and generally command premium rents and lower cap rates. Off-campus ambulatory sites trade convenience for patients against weaker pricing power. Newer buildings also price higher, with new MOBs at about $33.06 per square foot versus $24.78 for existing stock per sector reporting.
Location type | Character | Pricing |
On-campus | Adjacent to hospital, referral driven | Premium rent, tighter cap rate |
Off-campus | Retail-adjacent, patient convenience | More repricing pressure |
New construction | Modern clinical build-out | Higher rent, about $33 per SF |
Existing stock | Older systems, established tenants | Lower rent, about $25 per SF |
Why a Medical Office Building Matters
A medical office building matters because aging demographics and the shift of care to outpatient settings make it one of the most defensive property types, with occupancy near cyclical highs. Per JLL and Revista figures cited in sector reporting, MOB occupancy reached a cyclical high near 92.7% in the top 100 metros in 2025, and vacancy sat near 9.9%.
The sector rewards operators who underwrite tenant credit, healthcare system affiliation, and lease term. MOB investment volume surpassed $14 billion in 2025, up 34% year over year per Cushman and Wakefield reporting, as cap rates compressed. Per CBRE, the average MOB cap rate was about 7.0% in the third quarter of 2025. Physicians relocate rarely once built out, so renewal probability, not raw square footage, drives durable income.
Example
An investor buys a 50,000 square foot medical office building fully leased at $25 per square foot triple net, with $9 per square foot of operating costs recovered from tenants, and applies a 7.0% cap rate. Cap rate equals net operating income divided by value, so value equals NOI divided by the cap rate.
Component | Amount |
Leased area | 50,000 SF |
Base rent | $25 per SF NNN |
Annual base rent (NOI) | 50,000 x $25 = $1,250,000 |
Cap rate | 7.0% |
Implied value | $1,250,000 / 0.07 = $17,857,143 |
At a 7.0% cap rate, the $1.25 million of net operating income implies a value near $17.86 million, or about $357 per square foot. The example shows why MOB valuation runs through NOI and cap rate, and why a small cap rate move, tied to tenant credit and hospital affiliation, swings value more than square footage does.
Variations and Edge Cases
Medical office buildings vary by tenant mix, affiliation, and clinical intensity, and an underwriter should confirm which applies before comparing deals. A single-tenant building leased to a hospital system underwrites differently from a multi-tenant building of independent practices.
Variant | Treatment |
Single-tenant, credit tenant | Cap rates in the 6.0% to 6.5% range in some deals per sector reporting |
Multi-tenant | Diversified rent roll, more re-leasing risk |
Ambulatory surgery center | Higher build-out, procedure-room infrastructure |
Off-campus retail conversion | Convenient access, weaker pricing than on-campus |
The most common misread is treating a medical office building like generic Class A office because both are professionally leased buildings. Clinical plumbing, power, and layout make MOB build-outs costly to replicate, so tenants stay, and that stickiness, not the finish level, anchors the value.
Medical Office Building vs Traditional Office
A medical office building is often confused with traditional office because both lease suites to professional tenants. A medical office building serves clinical outpatient use, carries exam and procedure infrastructure, and holds occupancy near 92.7% per sector data. Traditional office serves desk work and has faced elevated vacancy across many markets since 2020.
The practical difference is tenant behavior and demand. Healthcare demand tracks demographics rather than the economic cycle, and physicians rarely relocate once a suite is built out. Traditional office demand tracks employment and remote-work trends, so MOB income is generally more durable and trades at tighter cap rates than commodity office.
Frequently Asked Questions
What is a medical office building?A medical office building is a property type leased to healthcare providers for outpatient clinical use such as physician practices, imaging, and dialysis. Often called an MOB or medical outpatient building, it carries specialized plumbing, power, and layout for exam and procedure rooms.
What cap rate do medical office buildings trade at?Medical office buildings trade at cap rates that vary with tenant credit and affiliation. Per CBRE, the average MOB cap rate was about 7.0% in the third quarter of 2025, while single-tenant buildings leased to credit tenants have traded in the 6.0% to 6.5% range in some deals.
Why are medical office buildings considered defensive?Medical office buildings are considered defensive because healthcare demand tracks demographics rather than the economic cycle, and physicians rarely relocate once a suite is built out. Per sector data, MOB occupancy reached a cyclical high near 92.7% in the top 100 metros in 2025.
Related Terms
Class A Office
Cap Rate
Net Operating Income
Anchor Tenant
Vacancy Rate