The office landscape has undergone a dramatic transformation since the COVID-19 pandemic. Traditional office spaces have seen a sharp decline in demand as remote work and hybrid models reshape how companies operate. In stark contrast, medical office buildings (MOBs) are experiencing steady growth, driven by the increasing need for healthcare services to be closer to patients and more cost-efficient than hospital real estate.
Bob Waun, co-founder of Physician Property Partners (PPP) and founder of DIRT Realty, is at the forefront of this change. PPP helps doctors transition from sole ownership of medical offices to partnerships in a diversified portfolio of medical properties. This model is not only delivering financial stability but also supporting the ongoing shift in how healthcare is delivered.
"While many traditional offices are being repurposed or left vacant, the demand for medical offices continues to grow," says Waun. "Doctors are moving their practices closer to patients and out of expensive hospital campuses. Medical offices are becoming the go-to solution for both cost efficiency and convenience."
Reuse of Office Spaces in the Post-COVID Era
Since the pandemic, remote work has dramatically reshaped the commercial office sector. According to a CBRE report, by mid-2023, vacancy rates in U.S. office buildings had risen to over 18%—nearly double pre-pandemic levels. Many companies have downsized, and developers are looking for creative ways to repurpose traditional office spaces. Conversions to residential units, life sciences labs, and even retail spaces are becoming more common as cities adapt to the new work dynamic.
However, medical office buildings remain largely insulated from this trend. Healthcare services, especially those requiring physical examinations or procedures, are inherently location-based, meaning patients still need to visit their doctors in person.
Moving Medical Care Closer to the Customer
One of the most significant changes in healthcare real estate has been the move away from hospital campuses to outpatient and ambulatory care centers located in communities. A 2022 JLL report highlighted that over 60% of healthcare services are now delivered in outpatient settings, up from 40% in 2010. The rise of outpatient care means doctors and healthcare systems are increasingly looking for convenient, cost-effective medical office spaces closer to their patients.
“Patients don’t want to navigate large, complex hospital campuses for routine care,” explains Waun. “By operating in local medical offices, doctors can deliver care in a more accessible and patient-friendly environment.”
Cost Differences: Hospitals vs. Medical Offices
Another key driver for the shift to MOBs is the stark difference in real estate costs. Hospitals are some of the most expensive real estate properties in the market, with hospital construction costs often exceeding $400 per square foot in prime markets, and operational costs adding to the burden. In comparison, medical office buildings can be constructed and operated at a fraction of that cost, often under $200 per square foot, according to Dodge Data & Analytics.
This cost disparity has become a major factor for doctors and healthcare systems seeking to control expenses while still providing high-quality care. With rising operational costs in healthcare, physicians are increasingly seeking ways to cut overhead, and leaving hospital-owned spaces for more efficient medical offices is one of the most effective ways to do so.
“Doctors are not only looking to reduce costs but to preserve care quality,” Waun says. “By relocating to medical offices, they’re not just saving money—they’re ensuring they can continue to deliver excellent care without sacrificing profitability.”
The Physician Property Partners Model
Physician Property Partners offers a unique model for doctors who want to reduce the hassle and financial burden of owning and managing their own properties. Through sale-leaseback agreements, doctors sell their buildings to PPP and reinvest as limited partners in a diversified portfolio of medical office assets. This gives them the stability of passive income while freeing them from the day-to-day challenges of property management.
"Doctors are under increasing pressure to cut costs while maintaining a high standard of care," Waun explains. "By partnering with us, they get the financial benefits of property ownership without the headaches of managing it themselves."
A Bright Future for Medical Offices
As the demand for outpatient services continues to rise, medical office buildings are expected to see continued growth. Medical office vacancy rates have remained consistently low—hovering around 7%—while traditional office space vacancies continue to climb, surpassing 18% in major U.S. cities. Furthermore, healthcare-related leases are long-term and backed by stable, recession-resistant tenants, making MOBs a safe investment for both doctors and real estate investors alike.
The post-COVID landscape may have disrupted traditional office spaces, but medical offices are thriving. As doctors continue to seek more cost-efficient, convenient ways to deliver care, the demand for medical office buildings is expected to grow, and Physician Property Partners is poised to meet that need.
In an era of rapid change, one thing is clear: the need for high-quality, well-located medical office space isn’t going away anytime soon.
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