Healthcare Realty, one of the largest U.S. owners of medical office buildings, reported on 29 October 2026 that it kept 88% of the tenants whose leases came up in the third quarter. A day earlier, the Federal Reserve held its policy rate and two of its officials voted for an increase. Together, the two announcements frame the question behind medical office building investment for an Indian investor, which is whether steady tenant demand can carry a property through a period of costly borrowing.
The evidence so far says demand for medical space has held up well, but the label on the building explains less than the lease, the tenant and the loan behind it. A medical office building is still commercial property with a debt schedule and a local market, and each of those can go wrong. This article explains what the asset is, what drives its demand, where its risks sit and what to check, building on the property types covered in the guide to U.S. real estate property types.
What a Medical Office Building Is
A medical office building, often shortened to MOB, is leased mainly to doctors, clinics, hospital systems and outpatient providers. Tenants use it for consultations, imaging, minor surgery, dialysis and therapy, so the space carries plumbing, power and ventilation that an ordinary office lacks. That fit-out is expensive, which is one reason medical tenants tend to stay longer than other office tenants. It also means an empty unit can take time and money to let again.
The industry separates on-campus buildings, which sit on or beside a hospital campus, from off-campus buildings in neighbourhoods and suburbs. An on-campus building gains patient traffic from the hospital next door, but it also ties its fortunes to one health system. An off-campus building depends more on where patients live and how easily they can reach it. Neither type is stronger in general, because the strength of any one building comes from its tenants and its market.
Why Medical Office Building Investment Has Held Up
Demand for medical space follows population and the way care is delivered more than it follows the business cycle. The Emerging Trends in Real Estate 2027 outlook for medical office from PwC and the Urban Land Institute names an ageing population and the move of care from hospitals to outpatient settings as the main drivers. It puts employment growth in ambulatory healthcare at close to 2.4%. JLL made a similar point in its medical outpatient report of 24 March 2026, which found that eight of the top ten growth areas for patient volumes were outpatient services.
Supply has stayed thin at the same time. According to PwC and ULI, completions in the 12 months to the third quarter of 2026 totalled 15.9 million square feet, down from 20.5 million a year earlier, and national inventory is growing by about 1% a year. The report names construction costs, and the rents needed to cover them, as the main brake on new building. When few new buildings arrive, existing ones face less competition for tenants.
The result shows up in occupancy. The same report puts average occupancy across the top 100 U.S. metros at 92.2% in the third quarter of 2026, slightly higher than a year earlier, and says renewal rates in the sector are generally above 80%. Healthcare Realty's figures fit that picture, with 88% tenant retention and a weighted average lease term of 5.9 years on its third-quarter leasing. These are company figures for one portfolio rather than a market average, but they show how long medical tenants tend to commit.
Where the Money Has Moved
Buyers have noticed this record. PwC and ULI report annual medical office transaction volume of US$17.6 billion as of the third quarter of 2026, up from US$9.2 billion a year before. Private investors bought US$13.5 billion of that, while listed REITs sold US$8.6 billion and bought just over US$1 billion. The buyers in this cycle are mostly private owners, which is the part of the market where an Indian investor would usually hold a stake through a sponsor, the firm that finds, buys and manages the property.
More buyers usually mean higher prices. The report notes that pricing has tightened for Class A buildings in good locations with strong health system tenants. When an investor pays more for the same rent, there is less room for error if a tenant leaves or interest costs rise, and that is where the Federal Reserve's decision comes in.
How Interest Rates Shape a Medical Office Building
The Federal Reserve kept the federal funds target range at 3.75% to 4% on 28 October 2026 and said inflation remains above its 2% goal. Lisa Cook and Beth Hammack dissented because they preferred a quarter-point increase. The decision says nothing directly about medical buildings, but it sets the cost of money that most property deals depend on.
Most medical office purchases use a loan. If that loan has a floating rate, or falls due while rates are high, the owner pays more interest and less of the rent is left for investors, a pattern explained in more detail in this note on refinancing risk when U.S. property loans come due. Long leases with yearly rent increases help, because income rises over time. Even so, they help only if those increases keep pace with interest and operating costs, so the loan's size, rate and maturity date deserve as much attention as the tenant list.
The Risks and Limits of Medical Office Property
The first risk is tenant concentration. A building leased largely to one hospital system or one physician group depends on that tenant's finances, and Healthcare Realty's own release lists tenants' financial condition and Medicare and Medicaid reimbursement rules among its risks. Changes in U.S. health policy can cut what providers are paid, which can affect their ability to pay rent or expand. PwC and ULI also name local healthcare market conditions and the One Big Beautiful Bill among the sector's risks.
Strong national numbers can also hide weak local ones. The same report shows ten of the 25 largest markets with negative net absorption over the past year, meaning more space was vacated than leased, and occupancy falling in Minneapolis, Houston and Philadelphia. Specialised fit-outs make empty space costly to let again, and a building on the wrong side of a hospital's expansion plans can lose its anchor tenant.
The usual limits of private U.S. property apply as well. A stake is illiquid and normally cannot be sold until the property itself is sold, as this explainer on liquidity before a U.S. property is sold sets out. Distributions can be reduced or stopped, property values can fall, leverage magnifies losses and the rupee value of dollar income moves with the exchange rate. An investor can lose capital.
What Indian Investors Should Check
Before committing to any medical office offering, an investor can work through a short set of questions with the sponsor's documents in hand. The answers usually sit in the offering memorandum, the rent roll and the loan summary.
- Who the main tenants are, what share of the rent each pays and when each lease ends.
- Whether the building is on or off a hospital campus, and how closely it depends on that hospital.
- How the loan is structured, including its rate, its maturity date and its size relative to the property's value.
- How local occupancy and new supply compare with the national figures.
- What medical property the sponsor has managed before, and how its fees are charged.
The route matters too. Indian residents usually send money under the Liberalised Remittance Scheme, which allows up to US$250,000 per person in a financial year, and the authorised dealer bank reviews each transfer. Offshore investors typically invest through a U.S. corporation, known as a blocker, that holds the property interest, and they receive Form 1042-S showing U.S. tax withheld on distributions. How that income is then taxed in India is set out in the U.S. real estate tax guide for Indian investors, and each investor's position is best reviewed with their own CA.
A Medical Building Is Judged by Its Tenants and Its Debt
Medical office property has drawn steady demand because people need care at every point in the economic cycle, and new supply has stayed limited. This quarter's data support that view, with occupancy above 92% across large markets and renewal rates generally above 80%. They do not show that every building is sound, or that higher interest rates leave the sector untouched.
The more useful reading is that a medical office building is a lease, a tenant and a loan in a particular town. An investor who checks those three things, and who accepts the illiquidity and currency exposure of any private U.S. property, stands on firmer ground than one who relies on the healthcare label. How this asset compares with net lease, multifamily and other property types is covered in the U.S. real estate market guide. Eligible investors can review how investing in U.S. real estate from India works on Raveum, including the property, sponsor, ownership structure, fees, risks and offering documents for each opportunity.
Frequently Asked Questions
What is a medical office building?
A medical office building is a property leased mainly to doctors, clinics, hospital systems and outpatient providers. It is fitted out for consultations, imaging, minor procedures and therapy, so it needs more plumbing, power and ventilation than an ordinary office. Many sit on or near a hospital campus, while others serve patients in residential neighbourhoods and suburbs.
How is a medical office building different from a regular office building?
The main difference is the tenant and the reason for being there. Medical tenants need to be close to patients and hospitals and spend heavily on fit-outs, so they tend to stay longer than other office tenants. Demand follows healthcare use rather than office hiring, although medical buildings still face vacancy, policy and interest rate risk.
What are the risks of investing in medical office buildings?
The main risks are dependence on one hospital system or physician group, changes in U.S. healthcare reimbursement, weak local demand and the cost of letting specialised space again. Like any private property, a medical office stake carries leverage and refinancing risk, may pay lower or no distributions, can fall in value and is hard to sell early.
How long are medical office leases in the U.S.?
Lease terms vary by tenant and building, but medical leases are often longer than general office leases because tenants invest heavily in their space. Healthcare Realty reported a weighted average term of 5.9 years on its leasing in the third quarter of 2026. Any specific building's lease schedule should be checked in its offering documents.
Can Indian residents invest in U.S. medical office buildings?
Indian residents can invest in U.S. property through permitted routes, usually by remitting money under the Liberalised Remittance Scheme up to US$250,000 per financial year. Private U.S. real estate offerings are open only to eligible investors, such as non-U.S. persons under Regulation S, and the bank reviews each remittance. Tax treatment should be confirmed with a CA.
Can you sell a stake in a medical office building before the property is sold?
Usually not. A stake in a private medical office building is illiquid, and offering documents often restrict transfers, so most investors should expect to stay invested until the sponsor sells or refinances the property. There is no public market for these stakes, and the holding period can run for several years, so money needed soon is better kept elsewhere.
This article is for general education only and is not investment, tax or legal advice. Rules change and depend on individual circumstances. Investing in private real estate involves risk, including loss of capital, illiquidity, falling property values, distributions not being paid and currency movements. Participation is limited to non-U.S. persons under SEC Regulation S and verified U.S. accredited investors under Regulation D Rule 506(c), and offerings on Raveum are not open to the general public.
