Medical office real estate is one of the most commonly overlooked niche commercial property sectors. Yet, it’s one of the sectors positioned to perform the strongest in the coming years.

Why?

Medical office buildings — also known as MOBs — tend to have long-term, strong tenants that are not severely affected by wider economic turmoil. People will always need to go to the doctor, after all, and this plays into the sector’s strength. 

Not every medical property will outperform, of course, but generally MOBs in growing cities (or cities with aging populations) near major hospitals face few challenges. As a result, in the past few years several major investors have begun diversifying into the medical office sector. 

Want an example? In October last year, Agora Realty & Management shelled out $30 million for a medical office plaza outside of Los Angeles. This wasn’t its first MOB investment, but the company traditionally has focused on grocery-anchored retail properties.

Niche or not, it provides real opportunity for major, stable returns — and there are several strong acquisition financing options available.

We analyzed major markets across the country to determine five markets we anticipate will be strong places to invest this year. Our methodology evaluated the approximate inventory of medical office space, contrasting it with the population’s healthcare needs (and the space required). Those cities with the largest potential gaps are below.

The Top 5 Cities for Medical Office in 2023

5. Asheville, North Carolina

Asheville, nestled in the Blue Ridge Mountains, has been steadily growing in population in recent years. The largest city in western North Carolina has a robust healthcare system: The largest hospital, Mission Hospital, has more than 800 beds and is a regional care provider to the city and the 18 counties in the region.

The city’s healthcare sector has expanded in recent years and continues to grow, according to employment data from the Bureau of Labor Statistics. As the population expands, more and more healthcare providers will be needed — and the metro’s existing inventory of medical office space is lagging behind. Expect asking lease prices to expand in the next few years, with even larger opportunities for investors renovating dated properties.

4. Springfield, Massachusetts

Less than 90 minutes west of Boston, Springfield is located in the Pioneer Valley of Western Massachusetts and is the state’s third-largest city. The metro has significant demand for medical office space — although Springfield’s population growth has remained relatively flat in recent years, there is a large, aging cohort that will place additional demands on the current systems.

The two largest hospitals in the city — Baystate Medical Center and Mercy Medical Center — have significant capacity, but much more will be needed on the private medical office side. Thirty minutes to the east, Worcester is experiencing a similar phenomenon, though the proximity of Boston does alleviate some of the demand for space.

3. Fresno, California

The city of Fresno has a large amount of medical office space, so it may be surprising to find it on our list. However, most of Fresno’s medical office buildings are dated or at the lower end of the quality spectrum — making the city an ideal spot for a value-add investor with an eye for MOBs.

Fresno’s two largest hospitals — Saint Agnes and Community Regional — are the mainstay of the city’s healthcare sector. Many of the metro’s medical office buildings are concentrated around these two facilities. The city has a rapidly growing aging population, however, so there are many MOBs located throughout the area providing various services from general practitioner to specialist care.

2. Long Island, New York

The state of New York has been experiencing a severe shortage in skilled medical staff, and this is also apparent across Long Island. While there’s ample medical office space on the island, Suffolk County has a clear shortage, particularly in its eastern reaches.

While many of Long Island’s aging residents head toward Queens for regular care, well-placed medical office buildings are continuing to capitalize on rent growth simply due to the lack of inventory. Additionally, the market is ideally positioned for value-add investing, as more than 75% of the existing medical office space is more than 20 years old.

1. Riverside-San Bernardino, California

As a whole, the office market in Riverside and San Bernardino counties is rather healthy, with relatively low vacancy rates and rising rents. The medical office sector — particularly looking further east, toward Palm Springs — is even more dynamic, with low inventory intersecting with high demand from a growing, aging population.

While the Inland Empire is much better known for its red-hot industrial real estate sector, the demographic growth this has brought — not to mention far more affordable pricing compared to nearby Los Angeles — has amplified other sectors, from multifamily to medical office.