The evolving landscape of healthcare office space: Key trends and strategic takeaways

By Team Lizzack-Horning of NAI James E. Hanson

The healthcare real estate market is undergoing a transformative shift driven by population changes, technological advancements, and evolving patient preferences. These factors are significantly influencing the demand for healthcare office space, particularly in the outpatient and medical office building (MOB) sectors. As healthcare delivery continues to pivot away from traditional hospital settings, both health systems and investors are adjusting their strategies to capitalize on this dynamic environment.

One of the most significant developments is the surge in outpatient care. Patient preferences are moving decisively toward more accessible, retail-like outpatient settings. These facilities are often more convenient, cost-effective, and closer to residential areas, aligning with the needs of an aging population and the rise in chronic conditions. According to the Advisory Board, outpatient volumes are projected to grow by 10.6% over the next five years, fueled by demographic trends and the increasing adoption of minimally invasive procedures.

This shift is also reflected in the market performance of MOBs. In Q4 2024, MOB absorption hit 19 million s/f, a 15% increase from the previous year, and occupancy rates rose to 92.8%. Despite strong demand, new MOB construction remains constrained due to high costs, inflation-related challenges, and a cautious investment climate. New starts accounted for only 0.8% of existing inventory in Q4 2024, and 92% of those projects were preleased, limiting availability for tenants seeking new space. Consequently, developers are turning to conversions and renovations, which now represent 59% and 32% of projects respectively, albeit only 13% of total square footage.

Healthcare providers and systems are increasingly adopting a strategic, data-driven approach to site selection. Factors such as local demographics, insurance mix, referral patterns, and competitor positioning now influence real estate decisions. Organizations are also pursuing ownership opportunities, with medical office condo sales up 13% year-over-year and 24% of purchases made by users rather than investors. Ownership provides greater control over space and long-term cost predictability, which is especially appealing in a tight leasing market.

From an investment standpoint, healthcare real estate remains resilient. Although year-over-year rent growth for MOBs slowed slightly to 2.5% in 2024 from 3.7% in 2023, rent levels continue to climb, especially in top-tier markets. Premium assets are outperforming mid- and low-tier properties, with a compound annual growth rate of 2.4% from 2019 to 2024.

Looking ahead, McKinsey forecasts strong EBITDA growth across healthcare sectors through 2028, with most segments exceeding 5% annual growth. Notably, personal care services—driven by an aging population and expanded government support—are expected to grow at a CAGR of 10–12%, underscoring a broader trend toward home-based and post-acute care.

In conclusion, the healthcare real estate market is being reshaped by a decisive shift toward outpatient care, constrained supply of new MOBs, and data-informed real estate strategies. Health systems and investors alike are capitalizing on these changes by focusing on strategic site selection, ownership opportunities, and integrated service delivery models. As the demand for accessible, cost-efficient care continues to rise, healthcare real estate will remain a critical component of industry’s evolution.

Team Lizzack-Horning of NAI James E. Hanson is an expert brokerage team specializing in healthcare, office, and investment property transactions.