It’s no secret that economic volatility has plagued certain real estate sectors in the past year. At the same time, healthcare real estate is holding its own, with demographics and fundamentals assisting in its slow and steady growth.
“Healthcare real estate has remained exceptionally strong in recent years, driven by the continued aging population, paired with healthcare systems shifting toward value-based and outpatient care to meet the increasing demand,” Alex Browne, Transwestern’s National Healthcare & Life Sciences Research Director, told ConnectCRE.
By the Numbers
Transwestern’s Q2 2025 Medical Office report offers the metrics to back Browne’s assertions. Specifically:
- 12-month net absorption: 7.4 million square feet
- Vacancy rate: 5.8% (a 20 basis point year-over-year decline)
- Asking rent: $22.64 (1.4% rent growth from the year before)
- Under construction: 11.1 million square feet
The report said that healthcare has led in employment gains while under-construction stock has dropped 50% in five years, prompting tenants to remain where they are.
In-depth on the Fundamentals
An aging population is one reason for the sector’s stability. “By 2040, the population over the age of 65+ is estimated to exceed 83 million, which could account for 25% of the total US population,” according to Browne. Close to half of healthcare spending in the United States is driven by the 65+ population, assuring ongoing and increased demand.
Furthermore, the healthcare system is shifting more toward outpatient-based healthcare, leading to the need for additional medical outpatient buildings, or MOBs. “These assets benefit from long-term, creditworthy tenants and consistently low vacancy rates from sticky tenants,” Browne explained. “These factors make MOBs attractive to institutional investors, which have been pivoting toward these assets.”
Then, There is Supply
While healthcare real estate has been relatively stable, Browne said it still faces broader headwinds, including rising interest rates, increased construction costs and tighter lending standards. The result is a slowdown in spec construction.
At the same time, the above factors keep supply and demand in check while pre-leasing remains robust. Less construction means historically low vacancy rates, Browne explained.
Browne also commented on an interesting divide in MOB construction. On the one hand, on-campus developments offer a higher rental building area (and account for 45% of MOB space under construction).
On the other hand, “suburban off-campuses that are retail adjacent are gaining traction with private practices, outpatient providers and healthcare groups who want to be closer to where patients live and work, decreasing the barriers to visits,” he pointed out.
Finally, the Crystal Ball
Browne said that healthcare real estate supply and demand should remain stable over the next 12 to 18 months, as tailwinds overpower headwinds. Ongoing demand, a responsible development pipeline, pre-leasing numbers, an increase in private investment and continued demand for medical services mean that MOBs should remain attractive assets.
The healthcare sector has helped boost employment growth, and “is an overwhelmingly in-person type of profession,” he added. “These professionals are going to need medical buildings to work in and serve the ever-aging population.”
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