Investment appetite for medical office product has continued to increase as the cycle has matured. That's because some investors see medical office as a good late-cycle play. In the last recession, the asset class proved to hold up, and now with growing demand drivers—thanks to a changing healthcare industry and an aging population—savvy investors are expanding medical office exposure before the next recession hits. JLL Income Property Trust is among the group strategically buying medical office assets, including its recent purchase of Genesee Plaza in San Diego for $90 million.

“Late cycle, we are purposely looking to take less risk and seek out defensive sectors, and medical office has certainly proved to fit this mold,” Allan Swaringen, president and CEO of JLL Income Property Trust, tells GlobeSt.com. “During the global financial crisis, values in the medical office sector held up better than virtually any other asset class, in large part due to both a more conservative development cycle—there is less speculative development and more build-to-suits in this property category—and to the stronger and more stable income-generation from these assets.”

Since the recession, the story hasn't change much. In fact, medical office has been among the strongest performers this cycle. “Over the past 10 years our return data shows that unleveraged income yields from medical office has outperformed both traditional office and the all-sector index by about 100 basis points, 6.1% versus. 5.2% and 5.1%, respectively,” says Swaringen.