What’s Ahead For Medical Office In 2026

The past year in commercial real estate was defined by volatility—from shifting policies and tariff pressures to broader economic uncertainty.

While not completely insulated, the medical office sector once again proved why it remains among the most stable asset classes. High occupancy, strong tenant retention and constrained new supply continue to support rent growth.

But the most powerful force behind demand is demographic: an aging population that relies heavily on outpatient care. Between 2023 and 2024, the U.S. population age 65+ grew 3.1 percent, while the under-18 population declined 0.2 percent, according to U.S. Census data.

These long-term shifts will continue to bolster outpatient utilization, helping shield medical office fundamentals from macroeconomic turbulence. More clarity on federal policy and the trajectory of interest-rate cuts would further lift investor sentiment—setting the stage for increased transaction activity in 2026 and a gradual, targeted return to development.

Setting The Stage For 2026

Medical office outperformed in 2025 as investors sought consistent returns and predictable cash flow.

“The sector continues to offer revenue opportunities not seen in many other property types,” noted Shawn Janus of Colliers, who pointed to private equity partnerships with health systems and provider groups as reinforcing confidence.

Despite macro pressures, demand held strong.

“Despite so many headwinds, we continue to see really significant growth,” said Sandy Romero of Cushman & Wakefield.

Demographics remain the primary momentum driver, with Baby Boomers increasing utilization of both inpatient and outpatient services. Capital markets, however, were uneven.

“Smaller and financially vulnerable providers felt the strain of elevated interest rates,” according to Transwestern’s Blake Williams.

By contrast, major health systems with solid balance sheets continued to advance infrastructure upgrades and new development, even amid limited and heavily pre-leased 2025 construction—conditions that helped push occupancy and rents higher across existing properties.

Regulatory uncertainty may become a more prominent challenge. Romero warned that potential shifts in Medicaid could cause some patients to delay care, impacting provider revenues and the real estate they occupy.

Janus added that the One Big Beautiful Bill Act—potentially the most sweeping health-care legislation since the ACA—could reshape care delivery and real estate strategy.

“Location strategy is increasingly critical as providers and hospitals shift away from rural areas into denser, high-demand markets, particularly across the Sun Belt,” noted JLL Income Property Trust’s Allan Swaringen.

The growth of telehealth further complicates space planning, requiring health systems to reassess which services must remain in physical facilities. To navigate these pressures, a disciplined, data-driven operating approach is essential.

“You have to be bullish in our industry, or you would be miserable every day,” said PMB’s Jake Rohe.

His optimism is supported by long-term demand drivers: the essential nature of outpatient care, payer preferences for lower-cost settings and technological advances enabling higher-acuity procedures outside hospitals. These trends continue to shape capital deployment and development patterns.

Investment & Development Trends

Investor interest in medical office remains robust even as available inventory stays constrained.

“Private equity and foreign capital—typically via domestically managed funds—are actively pursuing opportunities,” Janus said.

One of the year’s most notable deals underscored this: Welltower’s sale of its medical office portfolio to Remedy Medical Properties. Partnered with Kayne Anderson, Remedy is acquiring the 18-million-square-foot, 296-property portfolio across 34 states for $7.2 billion. The initial $2 billion tranche closed in October, with the remainder expected by mid-2026.

Development, however, remains cautious. Elevated financing and construction costs continue to push return requirements beyond what current rents can support, keeping supply in check. Still, Romero sees signs of acceleration.

“We continued to see a slowdown, but now we’re actually starting to see an uptick in construction,” Romero noted, even with costs up more than 40% since 2020.

Select markets—Dallas, Houston, Miami, Tampa and high-demand coastal metros—are seeing renewed building activity. According to Yardi Matrix, the U.S. now contains 28,726 medical office buildings totaling more than 2.2 billion square feet, with Houston, Washington D.C., Los Angeles, Chicago and Manhattan leading in inventory.

Launching new projects remains complex and requires a strong underlying health-care business case. Performance is closely tied to risk and often anchored by major health systems. Financing structures have expanded beyond traditional debt and equity to include credit-tenant leases, synthetic leases and both taxable and tax-exempt bond issuances.

Together, these shifts in investor appetite, development feasibility and financing innovation offer meaningful clues about what 2026 will bring.

What to Expect in 2026

Experts broadly agree that medical office will continue to deliver stability and compelling opportunities in 2026, propelled by growing outpatient and ambulatory surgery center expansion. Janus expects adaptive reuse to play a larger role, with empty retail and traditional office space increasingly converted into medical environments.

Location and efficiency will remain critical, especially as buildings are designed to support more complex procedures. These priorities will intensify as partnerships among health systems, providers and pharmacy benefit managers deepen—particularly if medication tariffs raise patient costs.

Romero anticipates an improvement in investor sentiment and more visible development activity in supply-constrained markets. Continued rate cuts and clearer policy direction would enable investors to move forward on deals currently in holding patterns.

Still, Williams cautions that the sector changes slowly. Major supply shifts or large-scale developments are unlikely soon; instead, providers will focus on optimizing occupancy costs.

Long-term fundamentals remain strong. Occupancies are now at a decade-high—around 93 percent, up from just under 91 percent two years ago. Tenant retention has climbed to nearly 89 percent. Since 2019, quarterly deliveries have fallen from 27 million to 20 million square feet, and construction starts have dropped to 17 million square feet.

As Swaringen put it, “We would give the medical office property a good bill of health.”

Outlook

Overall, 2026 is expected to bring steady performance and targeted expansion, with long-term upside tied to outpatient migration, adaptive reuse and disciplined capital deployment. The sector’s resilient foundation positions medical office to remain a core component of diversified real estate portfolios in the years ahead.

Source: Commercial Property Executive