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Big Decline in Q4 Transaction Volume Caps $17.1B Year

Fourth quarter data shows a steep decline in transaction volume as average cap rates retract slightly.

February 2023


Medical office building (“MOB”) sales volume in the fourth quarter of 2022 was $3.0 billion, a sharp decline from the third quarter’s record quarterly sales volume of $7.7 billion. The fourth quarter, which is typically one of the more-active periods each year for transactions, saw the lowest sales volume since 2015 and the least number of buildings to transact since 2012 with just 260 properties changing ownership. The average number of MOBs to trade in the fourth quarter over the last three years was 500, which purports a nearly-50 percent drop in transactions for Q4-22. 

The bright spot in the fourth quarter data was that valuations remain strong as average cap rates in Q4 were 6.2 percent (based on trailing 12-month averages). Although higher interest rates have a clear effect on the cost to borrow, the lack of supply of quality medical office building sales have kept downward pressure on cap rates for MOBs in comparison to other asset classes. In total, 2022 saw sales volume top $17.1 billion, besting 2021’s record high’s where total sales volume eclipsed $15.3 billion.


The number of properties exchanged in the fourth quarter totaled 260, which was a notable decrease from the third quarter’s 483 properties, and 65 percent lower than the average number of properties sold through the first three quarters of 2022. Historically, the fourth quarter has seen the most activity in terms of number of properties transacted on but due to the Federal Funds rate rising by 150 basis points from September to December, a dramatic slowdown in transactions was evident. Increasing rates paired with higher development costs have caused owners and developers to put a hold on new projects as they try to navigate an inflationary environment. 

Interest rates have risen at levels not seen in over 40 years as the Federal Reserve seeks to suppress inflation. December saw officials raise rates by 50 basis points, the smallest rate hike in seven months and a break from the previous three-quarter-point increase the Fed stuck with during the last four meetings. With the hope of the Fed ending interest rate hikes at some point in 2023, the question has turned to when and where we hit the terminal rate, but this all depends on inflation rates. Improvement has been seen in terms of supply chains and decreasing energy prices, but housing and food inflation paired with increased labor costs continue to negatively impact the economy, causing the Fed to hesitate on rate cuts. Fed Chair Jerome Powell has made it clear that the focus will remain on decreasing inflation before considering rate reduction but recent inflation prints suggest the next increase may be the lowest in this cycle yet at 25 basis points. What this could do is decrease the 3- and 5-year SWAP rates which many investors tee off for fixed-rate debt. Should this be the case, it may create a window of opportunity for investors to acquire buildings and mitigate upward pressure on cap rates. 

At the end of the fourth quarter, average MOB cap rates of 6.2 percent nearly equated to what market-based debt yield would be considered factoring the current interest rate environment (SOFR+200-300). With this being an inflection point for positive yield, it should be expected that cap rates will be suscept to interest rate movements upward. That being said, the significant lack of medical office buildings to acquire may stimy upward pressure on cap rates as building owners maintain ownership and choose not to sell as they benefit from their long-term fixed-rate debt at rates that could not be attained today. 

Investment Sales Trends

The healthcare real estate sector experienced continued demand from private equity investors in the fourth quarter, highlighted by the acquisition of a 12-property MOB portfolio through a joint venture partnership between Rendina Healthcare Real Estate, Artemis Real Estate Partners and CalSTRS. The 352,981 square foot portfolio was purchased for approximately $122.0 million ($346 per square foot) with a first year estimated return of 5.75 percent. The deal highlighted the continued trend from private equity investors who have focused on assets with strong weighted average remaining lease term (WALT), high occupancy, and “sticky” tenants. Boasting an occupancy rate of 96 percent, over half of the leased space is occupied by leading health systems, credit tenants and leading physician networks with a WALT of 6.6 years. The portfolio included 10 assets located in Certificate of Need (CON) states, representing the appeal of entering markets with high barriers of entry and limited future competition. 

In another joint venture partnership, AEW Capital Management L.P. and Flagship Healthcare Trust (Flagship REIT) announced the acquisition of eight ambulatory surgery centers (ASCs) across seven states. Spanning 145,561-square feet of ASC and medical office, the portfolio was valued at more than $80.0 million ($550 per square foot). The JV looks to capitalize on preferred patient trends of receiving care outside of the hospital setting, increasing the quality of customer service and cost-effective care.  

It is expected that private equity interest will continue to drive transaction volumes in 2023 within the healthcare real estate sector due to an abundance of “dry powder” and entrance of “non-traditional” investors looking to diversify their portfolio. 

Regional Review

The Southeast U.S. had the largest dollar volume of sales in the third quarter with nearly $550.0 million in transactions. Additionally, two other regions across the U.S. (Midwest and Southwest) saw transactions volumes exceeding $210.0 million of transaction activity. 260 properties transacted in the U.S. in the fourth quarter according to RCA data.  

Northeast Region

In December, New Jersey-based ICONIC Property Partners sold Crouse Medical Center, a 175,000-square foot multi-tenant MOB located at 5000 Brittonfield Parkway in Syracuse, NY. Built in 1991, the property is majority leased and anchored by Crouse Health System (Aa2/A+/AA-), a leading healthcare delivery network in Central New York. Crouse Hospital offers neurology, women’s care, internal medicine, physical rehabilitation, cardiology and imaging along with non-hospital clinical services, including ophthalmology, gastroenterology and lab at the property. 

In October, Dallas-based Big Sky Medical executed a sale-leaseback of a 33,900-square foot medical office building located in Salisbury, MD for $14.2 million or $417 per square foot. Located at 1675 Woodbrooke Drive, the property was constructed in 2008 and is leased to Peninsula Orthopaedic Associates, a specialized orthopedic group that has been serving the Maryland community for over 70 years. 

Mid-Atlantic Region

In November, AW Property Co. acquired the Ballad Health Urgent Care Clinic in Abingdon, VA for $12.4 million or $413 per square foot. Built in 2011, the property is a 30,000-square-foot class-A medical office building. The property is located one-half mile from Johnston Memorial Hospital and is 100-percent leased to Ballad Health (A3/A-/A) on a long-term credit lease. Ballad houses urgent care, heart and physical therapy clinics together with a primary care practice within the facility.  

Also, Catalyst Healthcare Real Estate of Pensacola, FL purchased a 38,904-square-foot medical office building in Winston-Salem, NC for $21.5 million or $624 per square foot. The building is 100-percent occupied by Novant Health (Aa3/AA-/AA-) which provides imaging services including MRI, CT, Ultrasound, X-ray and Nuclear Medicine at the property. The property is located directly across the street from Novant’s Medical Park Hospital (22-beds).  

West Region

In October, Calabasas-based Agora Realty & Management acquired the Tarzana Medical Plaza for $30,000,000 or $400 per square foot. The 75,000-square-foot medical office building was 90-percent occupied at the time of the sale with tenants that include Providence Healthcare Systems (A1/A+/A+), Cedars-Sinai Medical Care (Aa3/AA-/AA-) and Unilab Corp. Agora plans to complete renovations including interior and exterior upgrades. The strategic purchase is highlighted by the completion of Providence Cedars-Sinai Tarzana healthcare campus which is expected to open in April of 2023. The property will have direct access into the new hospital.  

Also, Gemini Rosemont acquired the Peninsula Life Science Center in December for $59,350,000 or $902 per square foot. The eight-story, 68,504-square-foot building was 98-percent occupied at the time of the sale and anchored by Halo Labs and Neptune Medical. The property benefited from $11.0 million in capital and tenant improvements in 2022 and is located in the heart of the Bay Area’s life science hub. 

Southwest Region

In December, Woodside Health purchased Foothills Health Center in Phoenix, AZ for $17.1 million or $320 per square foot. The 53,310-square-foot, single-story medical office building features 13 tenants and is anchored by Radnet, Inc (-/B/-), the largest provider of freestanding, fixed-site outpatient diagnostic imaging in the country with more than 350 locations. Other tenants include Arizona Spine, Disc & Sport, Arizona Diagnostic Radiology and Action Behavior Center. The building was constructed in 1994 and renovated in 2001. 

Also in December, New York-based OrbVest announced the acquisition of Jefferson Commons in Albuquerque, NM for $10.8 million or $188 per square foot. The property is 85-percent leased to Quest Diagnostics (Baa2/BBB+/BBB), Alaris Equity Partners-backed Sono Bello Plastic Surgery and WAFD Insurance Group. The property is located less than two miles from Lovelace Health’s Women’s Hospital (160 beds) and five miles north of downtown Albuquerque, an emerging market with high demand for outpatient medical services.  

Midwest Region

In November, Minneapolis-based Davis Medical Investors acquired a two-story, 42,467 square foot medical office building in Woodbury, MN for $18.0 million or $424 per square foot. The multi-tenant property is located on 4.73 acres in the Eagle-Woodwinds neighborhood of Minnesota and is just south of M Health Fairview Woodwinds Hospital. In conjunction with the acquisition, Woodlake Surgery Center, St Paul Eye Clinic and Midwest ENT all signed 15-year leases. 

Also, a joint venture between Kayne Anderson Real Estate and Remedy Medical property announced the acquisition of Kansas Spine & Specialty Hospital and Abay Medical Plaza for $27.8 million or $256 per square foot. Founded in 2003, Kansas Spine & Specialty Hospital (KSSH) features 35 licensed in-patient beds, seven operating rooms, two procedure rooms which utilize Robotic-Arm Assisted Surgery, and advanced imaging technology. Abay Medical Plaza sits adjacent to KSSH and is home to the Pain Center at Kansas Spine & Specialty Hospital and Abay Neuroscience Center, both affiliates of KSSH.

Southeast Region

In October, Lincoln Advisors, an affiliate of Dallas-based Lincoln Property Company, acquired the Northwest Medical Center in Atlanta, GA for $71.8 million or $481 per square foot. The 149,202-square-foot medical office building is located in the upscale neighborhood of Buckhead, GA and was 81-percent leased at the time of the sale. Boasting a WALT of 9.4 years, the property is occupied by 25 tenants who offer services including internal medicine, dermatology, gastroenterology, orthopedics, OB/GYN, physical therapy, dentistry, concierge medicine, oral surgery, ENT, plastic surgery, periodontics and imaging. 


Community Healthcare Trust (CHCT) acquired an 86,050-square foot medical office building in Cape Coral, FL for $24.7 million or $288 per square foot. Located at 1708 Cape Coral Parkway and constructed in 1993, the building predominantly occupied by medical users and include Florida Cancer Specialists & Research Institute, Urgent Care Center of Southwest Florida and Radiology Regional Center.   

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