OCIE Medical Outpatient Buildings in Demand September 2024

Executive Summary

• Complete build-outs for medical outpatient buildings (MOBs) can be a complex and expensive process, but they are worth the costs in Orange County (OC) and the Inland Empire (IE).
• The cost to build-out a new medical outpatient building in Southern California ranges from $200 to $300 per sq. ft., compared to a much lower cost range of $60 to $155 per sq. ft. for building out a new general office building.
• The Orange County and the Inland Empire markets housed 130.1 million sq. ft. of inventory for general office space, compared to 16.9 million sq. ft. of MOB inventory in Q2 2024. Due to the lower supply and sustained demand, as well as specialized build-outs, longer leases, and relocation costs, MOB vacancy and availability rates were significantly lower than those of general office.
• Since Q1 2020, MOB asking rates increased by 16.5% while general office asking rates decreased by 6.3% in Orange County. The Inland Empire saw similar trends, with asking rates increasing 3.0% in MOBs while only increasing 1.0% in general office. MOB space under construction in Q2 2024 was almost four times higher than that of general office space under construction.
• Healthcare services continue to be in demand regardless of economic conditions, making MOB investments more attractive.