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The Tortoise and the Hare: How MOB Assets are Slowly but Steadily Gaining Market Share in the Office Sector

As with many other industries, most of the medical office building (MOB) sector had to temporarily shut its doors and assess the best paths for moving forward during the initial onset of the pandemic. But unlike their "cousin" asset types such as multi-tenant or corporate office, MOBs quickly reopened within weeks given the mission-sensitive nature of its occupants. Healthcare isn't a field that allows for much work-from-home flexibility, so MOB remains a dynamic sector that is constantly active as tenants look to resign leases or even expand office space to better serve patients in the post-pandemic world.

According to SK Commercial Realty's President Tom Kirbo, the MOB sector has seen a shift in its primary tenant base over the past decade. This repositioning has played out over a gradual period, with the majority of MOB occupants going from traditionally private practices to primarily institutional-based tenants. The tremendous uptick in acquisitions and mergers among health systems throughout this time has fueled much of the transformation we now see. More space is needed as health systems follow the demographics of age and disposable income. Evidence of this transition can easily be seen in the Atlanta market, which happens to have one of the highest quality health systems in the country.

"Atlanta's four major health systems—Piedmont, Wellstar, Emory and Northside—have been faced with fierce competition to acquire private practices in various submarkets around the metro area and stake their claim," says Kirbo. "In some cases, it's more convenient to set up a practice than an entire hospital. All of this activity has made the MOB sector incredibly attractive for investors in recent years, especially when you have a mix of the right tenants in the right location where a higher level of patient care is needed."

SKCR has been one of the local forerunners for MOB investment and development thanks to our team's broad base of experience in healthcare real estate and ability to recognize and capitalize on the sector's resiliency long before it was on the radar of most other office owners. In 2020, we completed the development and full leasing of two new MOBs in Marietta, 620 and 660 Cherokee Street, which proved to be incredibly innovative projects that visibly stood out from the rest of the office space in the submarket. We are also overseeing the repositioning and branding of The Commons at Lake Hearn, a 12-acre medical office park in "Pill Hill", the largest healthcare and medical science hub in Atlanta. This property is changing the landscape of medical office product in the city, as it incorporates a large amount of green space and various outdoor amenities into the fabric of the campus. Our team has been very deliberate with the implementation of tenant-focused features that meet the needs of a post-pandemic world.

With several other projects on the drawing board right now in various markets around the metro area, SKCR understands the potential that lies in the MOB sector as it proves to be a shining light and top performer in CRE investment circles. Much like the story of "The Tortoise and The Hare", office owners and developers have historically tended to shift gears and focus on healthcare real estate when the general office market stagnates due to the slow but steady investment returns generated by MOB assets, but quickly return back to general office when market conditions rebound. However, that narrative may slowly be changing now given the growing influence of healthcare in the broader economy and new investment opportunities created by M&As.

"I think this trend is going to expand even further in the next five years," says Kirbo. We'll see even larger developments and an increase in investment activity happening within the healthcare office space. At SKCR, we have this in mind as we look to new submarkets around the city to start projects."

SKCR currency has contracts underway in several areas around greater Atlanta, including Cobb County, Paulding County and south of Atlanta near the Hartsfield-Jackson International Airport. For a full picture of SKCR's current MOB assets and to learn more about how we can help optimize your real estate portfolio, click here.

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