Healthcare Real Estate Shines Thanks To Fundamentals

While economic uncertainty has impacted several areas of real estate over the past year, healthcare real estate continues to show resilience.

Thanks to supportive demographic trends and steady sector fundamentals, the market is experiencing measured, reliable growth.

“Healthcare real estate has proven remarkably robust in recent years,” said Alex Browne, National Healthcare & Life Sciences Research Director at Transwestern, in an interview with ConnectCRE. “This strength is largely driven by the aging U.S. population and the healthcare industry’s shift toward value-based, outpatient care models to meet growing demand.”

Key Market Metrics

Transwestern’s Q2 2025 Medical Office report provides data that underscores Browne’s points:

• 12-month net absorption: 7.4 million square feet
• Vacancy rate: 5.8%, down 20 basis points year-over-year
• Average asking rent: $22.64, reflecting a 1.4% annual increase
• Space under construction: 11.1 million square feet

The report also notes that healthcare has led recent employment growth, while new construction activity has dropped by 50% over the past five years—encouraging tenant retention.

What’s Driving the Sector?

One of the most influential factors is the aging population.

“By 2040, Americans aged 65 and older are projected to number more than 83 million—about 25% of the total U.S. population,” Browne explained.

This group accounts for nearly half of all healthcare spending, indicating long-term, increasing demand for medical services. In response, healthcare systems are pivoting toward outpatient-focused care, boosting demand for medical office buildings (MOBs).

“These properties attract long-term, financially stable tenants and enjoy consistently low vacancy rates,” Browne noted. “That makes them particularly appealing to institutional investors, many of whom are increasing their exposure to MOB assets.”

The Supply Picture

Despite its relative strength, healthcare real estate isn’t immune to industry-wide challenges. Higher interest rates, construction cost inflation, and tighter lending criteria have slowed speculative development. However, these pressures also help keep supply and demand aligned, supporting historically low vacancy levels.

According to Browne, MOB construction trends show a split:

• On-campus projects (about 45% of MOB space under construction) offer larger rentable areas.
• Off-campus, suburban developments near retail centers are gaining popularity with outpatient providers and private practices. These locations offer easier access for patients and reduce the friction of medical visits.

Outlook Remains Positive

Looking ahead 12 to 18 months, Browne expects healthcare real estate to remain stable. Demand is expected to continue outpacing headwinds, buoyed by a balanced development pipeline, high pre-leasing activity, growing private investment, and sustained need for healthcare services. He also emphasized healthcare’s role in job creation.

“This sector contributes significantly to employment growth and is inherently in-person,” Browne said. “Medical professionals will always need spaces to work—and those facilities must keep up with the needs of an aging population.”

Source: connectcre