Distortions in a segment of the commercial office market: the case of medical office buildings

This article examines the U.S. market for Medical Office Buildings (MOB), a segment of the office market that has received little attention in the academic literature. Our attention is directed towards the impact of Certificate-of-Need (CON), a set of state level distortionary public laws that regulate health services planning. With respect to real estate, we find CON regulations increase rents and sales prices medical office building (MOB) rental rates. What makes these findings particularly interesting is that none of the states that currently have CON legislation in place have any language restricting MOB development. The empirical findings suggest that there is a supply constraint due to CON that has a distortionary effect on the MOB market.