Medical office real estate enters 2026 with an increasingly favorable supply-and-demand balance. Demand for outpatient facilities continues to expand, while elevated construction costs have limited the amount of new space reaching the market.

According to the Emerging Trends in Real Estate 2026 report from PwC and the Urban Land Institute, medical office buildings are well positioned to withstand broader economic uncertainty. Healthcare services remain essential regardless of economic conditions, giving the properties that support those services a measure of stability not found in many other commercial real estate sectors.

The nation’s aging population is one of the primary forces supporting continued demand. Medical advances are also allowing providers to perform more procedures outside traditional hospitals. As a result, health systems and physician groups are increasingly using community-based facilities for urgent care, imaging, dialysis, ambulatory surgery and other outpatient services.

This shift enables hospitals to reserve inpatient capacity for more complex cases while establishing convenient locations closer to the patients they serve.

Occupancy Reaches a Cyclical High

Medical office occupancy across the nation’s 100 largest metropolitan areas reached 92.7 percent during the second quarter of 2025. Over the previous three years, approximately 44.4 million square feet of new medical office space was completed, while occupied space increased by 48.9 million square feet.

With demand exceeding deliveries, healthcare tenants in many markets have fewer options when they need to expand or relocate.

That imbalance is also supporting rent growth. Average triple-net medical office rent across the top 100 metropolitan areas reached $25.35 per square foot during the second quarter of 2025—an increase of 8.8 percent over three years.

Florida and Texas have been particularly active. Population growth and expanding healthcare networks have supported medical development throughout both states. Houston led the country in trailing 12-month net absorption as of the second quarter of 2025, recording nearly 900,000 square feet of absorption against approximately 520,000 square feet of completed space.

High Development Costs Restrict New Supply

Although demand remains healthy, the national medical office construction pipeline stood at just 33.5 million square feet, near a cyclical low.

Rising labor and material expenses have made new projects more difficult to justify. Developers often need rental rates significantly above those of existing buildings to make construction financially viable. New medical office properties averaged approximately $33.06 per square foot in triple-net rent, compared with $24.78 per square foot for existing facilities.

That difference may create opportunities for owners to renovate or reposition existing medical buildings. Upgraded properties can offer healthcare providers modern facilities at rates below those required for newly constructed space, while allowing owners to capture higher rents.

There are early signs that development may be beginning to recover. Medical office construction starts reached 5.8 million square feet during the second quarter of 2025, the highest quarterly total in three years. However, the overall pipeline remains limited, and a rapid increase in supply appears unlikely.

Portfolio Transactions Regain Investor Attention

Medical office transaction activity remained muted during the first half of 2025, totaling approximately $3.7 billion, compared with $4.8 billion during the same period in 2024. Improving lending conditions and a return of large portfolio offerings, however, could support stronger deal volume in 2026.

Investors are once again showing a willingness to pay a premium for medical office portfolios. As of the second quarter of 2025, properties sold as part of a portfolio traded at an average capitalization rate of 6.5 percent. Individual medical office assets averaged 7.2 percent.

The difference suggests that investors see value in assembling diversified portfolios that provide scale across multiple properties, tenants and healthcare markets.

Policy changes remain a potential source of uncertainty, particularly for hospitals and providers that rely heavily on Medicaid reimbursement. Even so, financial pressure on health systems could accelerate the movement of care into less costly outpatient settings.

For investors, medical office real estate offers a combination of durable tenant demand, high occupancy and restricted new supply. Those fundamentals should continue to make well-located outpatient properties attractive during 2026, especially in growing markets where healthcare providers are expanding their community-based networks.

Sources: PwC and the Urban Land Institute, Emerging Trends in Real Estate 2026