Medical Office Buildings Offer Conservative, ‘Recession-Proof’ Approach to Real Estate Investment

Individuals constantly look for opportunities to invest in the real estate market. In today’s day, one avenue that has been gaining significant attention is medical office buildings (MOBs). These specialized properties can offer unique advantages for investors seeking stable and lucrative ventures that leverage opportunities within the real estate and healthcare industry. As the demand for healthcare services continues to soar, investing in medical office buildings emerges as a prudent choice for most investors, offering resilience against economic downturns and long-term capital growth.

The healthcare market is experiencing significant growth. This upward trend is expected to continue, as the market is predicted to exhibit an annual growth rate of 9.42% (CAGR 2024-2029), reaching a projected volume of $97.61 billion by 2029. This potential for stellar growth makes medical office buildings even more lucrative for investors. But what exactly is an MOB?

MOBs are essential hubs for healthcare practitioners that offer a stable tenant base and a steady rental income stream. The demand for healthcare services is unlikely to decrease, as factors such as the aging population, continuous technological advancements, and never-ending chronic diseases contribute to this growth.

Furthermore, the healthcare sector is largely resistant to economic downswings, as the demand for medical services remains essential, regardless of market conditions. As a result, MOBs tend to perform well even during challenging economic times.

Investing in medical office buildings requires careful evaluation of location and local market dynamics, including population demographics, healthcare infrastructure, and proximity to residential areas or transport hubs. Compliance with healthcare regulations, zoning laws, and building codes is essential to ensure smooth property operation and mitigate risks.

Conducting a comprehensive financial analysis is crucial when considering medical office building investments, and evaluating key metrics such as net operating income, capitalization rates, and cash-on-cash returns. Comparing potential returns and risks with other real estate investment options allows investors to make informed decisions based on their financial goals and risk tolerance.

Property investment company AXSYS Capital, based in Libertyville, Illinois, further underscores the potential of medical office building investments and gives the right direction to its investor clients. With a portfolio of 23 buildings valued at more than $60 million, AXSYS Capital focuses on multi-tenant medical and professional suites with long-term leases and high renewal rates. Their commitment to quality, growth, and stability has propelled AXSYS Capital to become a leading player in the industry. They expect to have over $100 million AUM by the end of 2024.

“Industrial real estate, particularly warehousing, has seen strong growth in recent years often leading to overvaluation, making it difficult to find appealing purchases. The same is true for many multi-family properties. Urban office properties have experienced several headwinds post-COVID, leaving investors with few attractive options. Investors are looking for a safe option at a strong value, and suburban medical buildings offer an attractive value proposition. In comparison to traditional office spaces, these properties tend to have higher renewal rates and have a much stronger forward outlook” states Co-founder and CEO, David Meggs.

AXSYS Capital’s strategic approach, focusing on properties in the $2 to $6 million range, fills a distinct niche in the market. These properties are often too large for local investors and too small for large institutional operators, providing AXSYS Capital with ample opportunities for growth and value optimization. “Our goal is to have MOBs comprise over 80 percent of our new acquisitions. We are constantly looking for quality assets in strategic locations, leveraging our experience and expertise to provide strong returns to our investors,” shares Mr. Meggs.

AXSYS Capital prioritizes innovation and efficiency, ensuring superior returns for investors. Through a real-time investor portal, stakeholders gain access to crucial financial information including capital contributions, distributions, and tax documents, fostering transparency and trust. Leveraging advanced technology, AXSYS implements energy upgrades and smart systems such as Bluetooth-enabled lighting, reducing operational costs while promoting sustainability. By embracing systems and technology across the portfolio, AXSYS enhances tenant experiences and property efficiency, ultimately optimizing asset performance and investor returns.

Moreover, AXSYS Capital’s forward-looking approach extends beyond traditional real estate management, utilizing cutting-edge tools for digital viewings and AI-driven marketing strategies. This commitment to staying ahead of the technology curve ensures that AXSYS remains agile and responsive to market demands, driving decision-making through data-driven insights and innovative solutions.

“The main challenge we’ve faced overall has been rising interest rates, which has affected everyone. However, we have seen an increase in CAP rates, which has helped to alleviate some of the pressure and we have remained diligent in our search criteria. It’s all about navigating market dynamics and remaining flexible to capitalize on opportunities,” Meggs states. By prioritizing growth, stability, and trust, AXSYS Capital sets itself apart as a leader in the industry, delivering value and resilience to investors seeking recession-proof opportunities in the dynamic landscape of real estate investment.