Physicians Realty Trust (DOC): 5 FORCES Analysis [Nov-2025 Updated]

You're looking for a clear-eyed view of Physicians Realty Trust (DOC) post-merger, and honestly, the $21 billion combination with Healthpeak significantly changes the game, giving them serious scale across 52 million square feet. As a seasoned analyst, I can tell you this move immediately reshapes the competitive dynamics-supplier costs are up due to high interest rates, but DOC's customer leverage is actually quite low thanks to long-term leases and mission-critical space. We need to dig into the five forces to see exactly where the real pressure points are now that DOC is a market leader; the next section breaks down the new reality for this healthcare real estate giant.

Physicians Realty Trust (DOC) - Porter's Five Forces: Bargaining power of suppliers

You're analyzing the supplier landscape for Physicians Realty Trust (DOC) as of late 2025, and the picture is one of persistent cost pressure, even with the tailwinds from the 2024 merger with Healthpeak Properties, Inc.

The cost of bringing new medical facilities online remains a significant factor influencing development decisions, which directly impacts the leverage held by construction material and labor suppliers. Honestly, the data shows that while the pace of escalation might be normalizing slightly, the absolute cost base is much higher than historical norms.

High construction costs make new development expensive, limiting builder power. You see this clearly in the Q3 2025 construction indices. The Turner Building Cost Index hit 1493, marking a 1.15% increase over the prior quarter and a 4.19% jump year-over-year. Similarly, the Mortenson Quarterly Cost Index for Q3 2025 showed a rise of +1.16% sequentially and +6.60% over the last twelve months. For capital project planning in 2025, a return to a more normative four percent annual escalation rate is being advised, down from the four to seven percent seen in the immediate post-COVID-19 era.

Here's a quick look at how those construction costs are stacking up:

Elevated interest rates increase the cost of capital for new projects. While the merged entity secured a $750 million, 5-year unsecured term loan in March 2024 with a fixed rate around 4.5%, the general borrowing environment still pressures new, unhedged development. For context on prior debt positioning, Physicians Realty Trust's revolving facility interest rate was LIBOR plus 0.725% to 1.40% under an agreement with a maturity date extending to September 24, 2025.

Land suppliers in high-barrier-to-entry markets retain strong pricing power. While specific land cost data isn't readily available for direct quantification here, the persistent demand in core markets like Dallas, Houston, Nashville, Phoenix, and Denver-where the combined portfolio is concentrated-suggests that prime, shovel-ready sites for outpatient medical properties command premium pricing from developers like DOC.

Specialized healthcare-focused contractors and labor can command premiums. The upward pressure on construction costs is partly attributed to labor rates and shortages. This dynamic means specialized subcontractors familiar with stringent healthcare building codes and facility requirements can negotiate higher rates, which you see reflected in the overall cost index increases. You're definitely paying more for expertise in this niche.

The merger is expected to generate $20 million or more in additional synergies by end of 2025, partially from operational efficiencies. The initial synergy target was $40 million for 2024, but the combined company has already surpassed year one targets by over 25%, now expecting total synergies north of $65 million. These operational efficiencies, such as internalizing property management across millions of square feet, help offset some of the external supplier power by reducing internal overhead.

• Internalized property management across nearly 20 million square feet in 2024.
• Additional internalization of 14 million square feet planned in 2025 and beyond.
• The merger created a platform with affiliations with each of the 10 largest health systems in the United States.

Finance: draft the Q4 2025 supplier cost variance report by next Wednesday.

Physicians Realty Trust (DOC) - Porter's Five Forces: Bargaining power of customers

When looking at Physicians Realty Trust (DOC), now operating as Healthpeak Properties, Inc. following the merger, the bargaining power of its customers-the physicians, hospitals, and health systems leasing the space-is generally kept in check by structural features of the medical office building (MOB) sector and the company's leasing strategy. You need to understand that these aren't typical office tenants; their real estate is often tied directly to patient care delivery, which changes the negotiation dynamic significantly.

The primary defense against customer leverage comes from the duration of the contracts. Power is mitigated by long-term leases; DOC's pre-merger portfolio had a 5.1-year weighted average remaining lease term as of December 31, 2023. This long runway locks in revenue streams and reduces the frequency with which DOC must face a tenant at the bargaining table. Also, the quality of the tenant base itself acts as a deterrent to aggressive negotiation.

We see this tenant quality reflected in the credit profile. The expectation is that 7 out of the top 10 tenants are investment-grade rated, providing strong credit quality but also sophistication in their negotiation approach. While sophisticated, their need for specialized, compliant space limits their options. Medical office space near hospitals is mission-critical, making relocation for tenants extremely difficult; moving a specialized clinic or surgical center involves massive capital expenditure, regulatory hurdles, and potential disruption to patient flow, which heavily favors the incumbent landlord in renewal discussions.

This stickiness is further evidenced by high retention figures. High tenant retention rates, a peer reported nearly 85% in Q1 2025, limit customer leverage. For the combined entity's outpatient medical segment in Q2 2025, the reported tenant retention was 85%. This high rate suggests tenants value the location and quality of service enough to accept renewal terms, rather than seeking alternatives.

Diversification also plays a role in mitigating the power of any single large customer. The combined entity's top 10 tenants only represent 21% of annualized base rent, ensuring diversification. This low concentration means the loss of one major tenant would not materially impact the overall financial health of Physicians Realty Trust (DOC).

Here's a quick look at the key metrics influencing customer power:

The power of these customers is structurally low because of the specialized nature of the real estate. You can see this dynamic playing out in the leasing results:

• Leases signed in Q2 2025 showed positive cash re-leasing spreads of +6% for outpatient medical renewals.
• The portfolio benefits from being strategically aligned with health systems; pre-merger DOC aimed for assets critical to essential outpatient care.
• The high cost and difficulty of tenant relocation create a natural barrier to switching landlords.
• The company maintains affiliations with each of the 10 largest health systems in the United States, which provides strong relationship leverage.
• The focus on on-campus or affiliated properties means tenants are embedded in the provider's long-term strategic footprint.

Honestly, the combination of long-term contracts and mission-critical location means that while these customers are sophisticated, their ability to extract significant concessions is limited by the physical and regulatory realities of their operations. Finance: draft 13-week cash view by Friday.

Physicians Realty Trust (DOC) - Porter's Five Forces: Competitive rivalry

You're analyzing the competitive landscape for Physicians Realty Trust (DOC) after its major combination, and the rivalry force is definitely shaped by the new scale. The merger of equals, valued at approximately $\mathbf{\$21}$ billion, created a powerhouse platform with nearly $\mathbf{52}$ million square feet of healthcare facilities, positioning the combined entity as a market leader in the sector. This scale is critical because it directly impacts the ability to compete for top-tier assets and secure relationships.

Rivalry remains high among the major healthcare REITs. For instance, a key competitor, Ventas, Inc., reported a market capitalization of $\mathbf{\$37.00}$ billion as of late November 2025, showing that DOC operates in a space dominated by very large, well-capitalized players. While Healthcare Realty Trust data isn't directly comparable post-merger, the presence of other multi-billion dollar REITs ensures that competition for acquisition targets and prime leasing opportunities is fierce.

Competition for the best properties, especially Class A Medical Office Buildings (MOBs), in high-growth areas like Dallas and Nashville remains intense. This isn't just about who has the lowest rent; it's about who has the capital and the relationships to secure the next generation of high-quality, off-campus medical space. The market trend in late 2025 is a 'flight-to-quality,' meaning investors are prioritizing location and asset class, which drives up the price and intensity of bidding for those specific properties.

The resilience of the MOB sector suggests that rivalry is currently focused on strategic growth rather than destructive price wars. Nationally, the MOB occupancy rate across the largest $\mathbf{100}$ metro areas was hovering at a cyclical high of $\mathbf{92.7\%}$ as of 3Q25. This tightness in availability-vacancy is generally declining in 2025-means that competitors are fighting over limited supply through acquisitions and development pipelines, not by slashing rents to poach existing tenants.

To sharpen its cost advantage against these rivals, Physicians Realty Trust is aggressively pursuing integration benefits. The company is targeting $\mathbf{\$60}$ million in run-rate synergies by the end of 2025, building on the $\mathbf{\$40}$ million generated in 2024, with potential for an additional $\mathbf{\$20}$ million or more realized by year-end 2025. This focus on internal efficiency helps maintain competitive pricing power and enhances the overall value proposition to both investors and tenants.

Here's a quick look at the scale and market context:

The competitive dynamics are also supported by the strength of the combined entity's relationships:

• Affiliations with each of the $\mathbf{10}$ largest health systems in the United States.
• Deep relationships with large physician groups and biopharma tenants.
• Internalization of property management in key markets progressing ahead of schedule.
• $\mathbf{40}$ million square feet of outpatient medical properties concentrated in high-growth markets.

The market is tight, and the big players are focused on quality. Finance: draft 13-week cash view by Friday.

Physicians Realty Trust (DOC) - Porter's Five Forces: Threat of substitutes

The threat of substitutes for Physicians Realty Trust (DOC) is moderated by the specialized nature of medical real estate, though digital alternatives present a persistent, evolving challenge.

Substitute space, like general office buildings, is not viable due to specialized medical build-outs and location needs. Medical office buildings (MOBs) require specific infrastructure, such as higher electrical capacity, specialized plumbing, and often proximity to hospital systems for seamless patient transfer and physician convenience. This specialization creates a barrier to substitution. In contrast to the medical sector, the broader U.S. office market faced a national vacancy rate of 14.1% as of Q1 2025.

Telehealth is a growing substitute for in-person visits but requires less, not zero, physical space. While virtual care handles routine consultations, complex procedures and diagnostics still mandate physical facilities. By 2025, over 43% of Americans are projected to use telehealth regularly as a preferred alternative to in-person visits. McKinsey estimates that $250B of the healthcare market can potentially be virtualized. Still, for many services, physical space remains essential, meaning telehealth substitutes for volume of visits, not space entirely.

New construction rents are around $35/SF, substantially higher than DOC's in-place rents of about $25.35/SF (a peer/sector average), limiting new supply as a substitute. The high cost of new supply acts as a natural cap on substitution from new builds. The average triple-net (NNN) rent across the Top 100 metro areas was $25.35/SF as of 2Q 2025. New, high-quality MOBs command a premium, with the top 10% base rents reaching $39.00/SF. This significant gap between high new development costs and existing in-place rents discourages tenants from moving to new, unsubsidized space, thus protecting existing occupancy.

Outpatient facilities are a secular trend, substituting for higher-cost inpatient hospital settings. This shift increases demand for the exact type of real estate Physicians Realty Trust owns. Health care employment growth stood at 2.8% annually as of August 2025, significantly outpacing the total nonfarm growth rate of 0.9%. This sustained employment growth in healthcare underpins the fundamental demand for outpatient medical real estate.

The current market dynamics for substitute space can be summarized:

• General Office Vacancy (Q1 2025): 14.1%
• Top 10% MOB Base Rent (2025): $39.00/SF
• Average MOB NNN Rent (2Q 2025): $25.35/SF
• Projected Regular Telehealth Users (2025): Over 43% of Americans
• Healthcare Employment Growth (Aug 2025): 2.8%

The specialized nature of the real estate and the high cost of new, substitute construction provide a defensive buffer against substitution threats, although digital substitution continues to evolve.

Physicians Realty Trust (DOC) - Porter's Five Forces: Threat of new entrants

The threat of new entrants for Physicians Realty Trust is low, primarily due to significant capital and regulatory barriers that make new, ground-up development economically challenging in the current environment.

New Medical Office Building (MOB) development doesn't 'pencil' well for new players. Construction costs remain high, with national MOB estimates ranging from $375 to $1,018 per square foot, depending on complexity and location. Furthermore, elevated interest rates in 2025 increase borrowing costs, pressuring project budgets.

The cost to enter by acquisition is also prohibitive. The scale achieved by the combined entity following the $21 billion all-stock merger between Healthpeak Properties and Physicians Realty Trust creates a portfolio of approximately 52 million square feet, solidifying a market position that's difficult to replicate through purchase.

New supply entering the market is constrained, acting as a barrier. New MOB construction starts accounted for less than one percent of the sector's total inventory over the past year (as of late 2025). For context, inventory under construction was reported at 2.4% of total inventory in 2024.

Zoning and regulatory hurdles for healthcare real estate development are high, introducing time-consuming delays that deter smaller or less experienced entrants.

New entrants lack the deep, established operational ties Physicians Realty Trust now possesses. The combined entity features 40 million square feet of outpatient medical properties concentrated in major markets like Dallas, Houston, Nashville, Phoenix, and Denver, built on relationships with top health systems.

Here's a quick view of the supply/cost dynamics affecting new entrants:

The barriers to entry manifest in several ways you need to watch:

• New development costs: $375 to $1,018 per square foot.
• Financing: Borrowing costs are pressured by elevated 2025 interest rates.
• Regulatory: High time-to-market due to healthcare-specific codes.
• Scale: Competitors can't easily match the 52 million SF footprint.