Macroeconomic Highlights

In Q2 2025, macroeconomic conditions remained challenging but showed early signs of stabilization as the Federal Reserve held rates high amid sticky service-sector inflation, with markets anticipating a modest cut later this year; capital markets showed improvement, with the bid ask spread decreasing, yet sector fundamentals proved resilient: manufactured housing REITs delivered strong NOI growth on the back of rent increases, high occupancy, and rental conversions supported by affordability-driven demand; medical office REITs benefited from favorable lease escalations and regulatory momentum from a proposed CMS rule expanding outpatient eligibility, though biotech and lab exposure faced capital pressures; and self-storage REITs posted sequential improvement in rental rates and occupancy after a soft start to the year, with operators leaning on expense control, targeted acquisitions, and portfolio optimization to offset Sunbelt supply pressures – collectively, REIT performance underscored that while high rates and inflationary costs remain headwinds, long-term demand drivers such as constrained housing affordability, demographic growth, and essential service demand continue to provide durable support.

Inflation and the 10-Year Treasury Since 2022

Inflation and the 10-Year Treasury Since 1962

Q2 2025 Healthcare REIT Data Overview

Q2 2025 Healthcare Real Estate Operating Fundamentals

Healthcare Real Estate Lease Rates

Healthcare Realty Trust (HR) reported that its stabilized portfolio, representing 75% of total assets, has average lease escalators of 3%, with current occupancy at 95% and NOI margins above 65%. In its lease-up portfolio, rents are approximately 20% below market, creating significant upside potential. Same-store cash NOI growth of 5.1% in the second quarter was supported by lease economics and occupancy gains. Healthpeak Properties (DOC) achieved a 6% positive rent mark-to-market in both its outpatient medical and lab segments during the quarter, with tenant retention of 85% in outpatient medical and 87% in lab. Ventas (VTR) reported revenue per occupied room (RevPOR) growth of 5.3% in its Senior Housing Operating Portfolio (SHOP) for Q2, with full-year RevPOR guidance at 4.5%. Welltower (WELL) delivered approximately 5% RevPOR growth across its seniors housing operating portfolio, benefiting from strong pricing power and a historically widespread between rent per occupied room and expense per occupied room, which has supported margin expansion.

Medical Office REITs – NOI/Occupied SF (MOB Same Store)

Healthcare Real Estate Occupancy

HR’s same-store occupancy reached 90% in Q2, a sequential increase of 70 basis points, supported by 83% tenant retention. Its stabilized portfolio occupancy stood at 95%, while the lease-up portfolio was at 70%. The company’s signed non-occupied pipeline was approximately 610,000 square feet, representing nearly 170 basis points of potential occupancy growth in upcoming quarters. DOC reported outpatient medical retention at 85% with over 1 million square feet of leases executed in the quarter, plus an additional 419,000 square feet signed in July and 682,000 square feet under LOI. In its lab segment, same-store occupancy declined by 280–290 basis points due to expirations, tenant relocations, and departures of tenants unable to raise capital earlier in the year. VTR’s SHOP same-store occupancy grew by 240 basis points year-over-year, led by the U.S. with 290 basis points of growth, and Canadian operator Le Groupe Maurice maintained occupancy over 98%. June was a standout month for VTR, with sequential SHOP occupancy growth of 60 basis points versus May, driven in part by Holiday by Atria’s 110-basis-point sequential gain. WELL’s seniors housing operating portfolio occupancy increased by 420 basis points year-over-year, with the U.K. portfolio achieving a 600-basis-point gain.

Medical Office REITs – Period Ending Occupancy (MOB Same Store)

Healthcare Real Estate Income & Expenses

HR’s same-store cash NOI growth of 5.1% in Q2 was driven by a 60-basis-point increase in occupancy and strong expense control that improved margins by 50 basis points year-over-year. DOC recorded total portfolio same-store growth of 3.5%, with outpatient medical growing same-store cash NOI by 3.9% and lab by 1.5%. VTR’s total company same-store cash NOI grew nearly 7% in Q2, led by SHOP with over 13% growth. Its outpatient medical segment delivered 2.2% same-store NOI growth, while research declined slightly by less than 1% year-over-year. WELL posted total portfolio same-store NOI growth of 13.8%, with its seniors housing operating portfolio achieving 23.4% growth. Organic revenue growth in this portfolio was 10%, driven by occupancy gains and ~5% RevPOR growth, while expense per occupied room increased by only 0.2%, the lowest in its reported history. This expense control drove 330 basis points of margin expansion to 30.7%.

Medical Office REITs – YoY Revenue Growth (MOB Same Store)

Medical Office REITs – YoY Expense Growth (MOB Same Store)

Medical Office REITs – YoY NOI Growth (MOB Same Store)

Healthcare Real Estate Investment & Transaction Activity

HR completed $211 million of asset sales year-to-date through July, plus a $38 million loan repayment, totaling approximately $250 million in proceeds. The company has an additional $700 million of dispositions under contract or LOI and increased its full-year disposition outlook to $800 million–$1 billion. It plans approximately $300 million of capital investment over the next three years into ready-to-occupy suites and redevelopments within its lease-up portfolio. DOC completed two large outpatient development projects in Atlanta with a combined projected spend of $150 million, both anchored by Northside Hospital and 78% pre-leased prior to construction start. VTR increased its 2025 senior housing investment volume guidance to $2 billion, having closed $1.1 billion year-to-date and $3 billion since the beginning of the prior year. Year-to-date acquisitions are expected to yield 7.2% in the first year with low- to mid-teens unlevered IRRs. WELL reported $9.2 billion of acquisitions closed or under contract year-to-date, with $3.7 billion closed in the first two quarters and $5.5 billion under contract. Approximately 90% of its deals were privately negotiated, with most focused on seniors and wellness housing.

Medical Office REITs – Aquisition Dollar Amount History

*Excludes Healthcare Realty Trust merger with Healthcare Trust of America, for $7.75 billion in Q2 2022

Healthcare Real Estate Cap Rates & Bid-Ask Spread

HR expects to close 2025 asset sales at a blended cap rate of approximately 7%. VTR’s senior housing investments closed year-to-date carry an expected first-year cash yield of 7.2%, consistent with its historical activity over the past 18 months. The other companies did not quantify cap rates but emphasized transaction quality and return potential. HR and DOC both noted strong private market demand for outpatient medical assets, which supports favorable pricing for sellers.

Medical Office REITs – Implied Cap Rate History

*The implied cap rate data indicates the market value of each REIT.   

The implied capitalization rate is a culmination of the company value and total debt of each company divided by its NOI. 

Medical Office REITs – Enterprise Value History

Headwinds in the Healthcare Real Estate Market

HR continues to work through years of underinvestment in its lease-up portfolio, where occupancy is 70% and NOI margins are 55%, as well as a large disposition program designed to deleverage the balance sheet. DOC’s lab segment faces occupancy pressure from small-cap biotech tenants with unsuccessful capital raises, accounting for part of a 280–290-basis-point same-store occupancy decline in Q2. VTR’s research portfolio is experiencing headwinds in its innovation/flex space tenant base due to sector-wide capital constraints, contributing to a slight year-over-year NOI decline. WELL acknowledged underperformance in its Holiday by Atria acquisition, calling it its largest capital allocation disappointment of the past decade, and is still in the process of transitioning and reworking the portfolio to meet expectations.

Tailwinds in the Healthcare Real Estate Market

HR is benefiting from robust health system leasing demand, with health systems accounting for one-third of its Q2 leasing, and has opportunities to push rents in its lease-up portfolio that are 20% below market. DOC is positioned in high-growth metros such as Dallas, Houston, Nashville, Atlanta, Phoenix, and Denver, with outpatient medical supply at the lowest levels in two decades. VTR’s senior housing outlook is supported by record-low construction starts of approximately 2,000 units in Q2 and a projected 28% growth in the over-80 population in the next five years, alongside data-driven pricing optimization from its Ventas OI platform. WELL’s seniors housing portfolio benefits from fixed-cost leverage, wide rent-to-expense spreads, margin expansion from occupancy gains, and operational efficiencies from its Welltower Business System, which has already trained over 8,000 site employees and identified cost savings such as a 2.1% year-over-year decline in utilities expense per occupied day.

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