📢Chicago’s medical office market, the nation’s largest at ~61M SF, is bucking national office headwinds. MOB vacancy (~8%) is less than half the citywide office vacancy (~20%), buoyed by hospital system expansion and sticky tenants. With nearly 912K SF delivered in the past year and positive net absorption, investor confidence has returned, tightening cap rates to ~6.9%.
Inventory: ~61M SF (largest U.S. MOB market)
New Deliveries: ~912K SF last 12 months
Net Absorption: >1M SF (only market above threshold)
Vacancy: MOB ~8% vs. Chicago office ~20%
Cap Rates: Down 10 bps QoQ to ~6.9%
Lease Renewal Rates: ~85%+ for MOB tenants
Rent Growth: +1–2% YoY
Loan Performance, MOB loans show low risk profiles, with lenders pricing debt ~25–50 bps tighter than downtown office. High renewal probability (>85%) supports stable DSCR and refinancing terms. Even with higher base rates, lenders fund MOB acquisitions at 60–65% LTV, unlike speculative office plays.
Demand Dynamics, Healthcare systems (Northwestern, Advocate, Rush) expand outpatient facilities into suburbs, driving absorption. Tenant investment in custom build-outs (labs, imaging suites) makes relocations rare, ensuring sticky demand. Demographic tailwinds from aging populations sustain steady occupancy.
Asset Strategies, Conversions of strip malls and vacant suburban offices into clinics are gaining traction. Adaptive reuse requires infrastructure upgrades (floorplates, plumbing, parking ratios), but when feasible, such projects unlock durable NOI and reposition distressed assets into stable MOB holdings.
Capital Markets, Investment sales activity is rising after an 18-month lull. Cap rates at 6.5–7% sit ~50 bps inside traditional office, offering spread over Treasurys (~4.3%). MOBs are increasingly treated as “defensive” assets, with capital migrating from cyclical office into healthcare-backed real estate.
Chicago MOBs deliver record absorption while broader office contracts.
Lenders and investors treat MOBs as defensive, capital-friendly assets.
Sticky tenant base underpins high occupancy and renewal rates.
Adaptive reuse converts failing retail/office into resilient medical hubs.
🛠 Operator’s Lens
Lock in renewals early: scarcity of MOB space gives leverage to extend leases.
Explore retail-to-medical conversions where zoning and infrastructure allow.
Refinance opportunities exist now as lenders prioritize healthcare NOI.
Chicago health systems will keep expanding outpatient and specialty care facilities, supporting absorption in suburbs and retail corridors. Cap rates likely remain in the mid-6% range, with potential compression if institutional demand strengthens.
Adaptive reuse and healthcare partnerships will accelerate, as hospital systems team with landlords to repurpose vacant offices into clinics. Even in downturns, MOB demand tied to essential services should outperform discretionary CRE, making Chicago a long-term safe haven within the office category.
Reuters: (StanChart 50 bps call)
Chart 1 – Top U.S. MOB Deliveries, Last 12 Months
Chart 2 – MOB vs. Office Vacancy, Chicago Q2 2025
