High demand for outpatient care is driving growth in the medical office building sector.
Health systems are increasingly looking to buy or rent medical offices to provide more complex procedures outside of the hospital, according to a new report from real estate management firm JLL. The medical office space is poised to continue to grow as providers aim to lower costs, boost patient satisfaction and treat more patients, JLL researchers said.
Related: Why health systems are pumping billions of dollars into outpatient care
“Health systems want to take lower acuity services off their hospital campuses and into a lower cost environment so they can backfill hospitals with higher value, higher acuity beds and services,” Matthew Coursen, JLL's Mid-Atlantic healthcare market leader, said. “Because of the lack of medical office building supply and increased demand for care, we’re expecting more organizations to consider adaptive reuse of facilities like office space and retail.”
Here are five takeaways from the report.
1. Health systems build more medical offices
Health systems led all other providers, such as specialty physicians and general practitioners, in medical office construction.
In 2024, health systems accounted for 53% of medical office construction square footage, according to JLL data. The share of health system-led medical office construction was 41% in 2019.
Some providers are choosing to build rather than lease buildings. Doing so is more efficient than renovating space to accommodate the necessary electrical, plumbing and technology for more complex services, JLL researchers said.
2. Medical offices are used for complex, high-margin services
Medical office construction has focused on accommodating complex, high-margin services such as cancer and cardiovascular care.
Health systems seek to ramp up oncology, cardiology, orthopedics, general surgery, spine and vascular services in outpatient settings as inpatient growth in those services is expected to stagnate or decline, according to the report.
3. Health systems look to the suburbs
Construction in many markets has occurred in the rapidly growing suburbs.
Some of the most active medical office construction markets include New York, Chicago, New Jersey and Houston, where health systems look to free up space in their hospitals by directing more patients to outpatient sites, JLL researchers said.
Health systems may want to invest in Northern Virginia, suburban Maryland, Raleigh-Durham, North Carolina, southwest Florida, Atlanta, Georgia, Las Vegas, San Antonio, Phoenix and Miami markets where population growth is outpacing medical office construction, according to the report.
4. Specialists seek medical office space
Nearly a third of medical office leases signed in 2024 were linked to specialty providers.
Among that share, psychiatry and behavioral health, orthopedics, obstetrics and ophthalmology leased the most medical office space last year, JLL data shows.
Still, health systems accounted for most of the medical office leasing activity at 46% of the total square footage leased last year.
5. Investors eye medical office buildings
Investors, such as real estate investment trusts, are targeting medical offices as rents, retention rates and occupancy levels rise, and as the office sector slumps.
Healthcare REITs are seeing steady net operating income as average medical office asking rent grew 1.9% from 2023 to 2024, according to the report. Medical office occupancy grew from 92.4% to 92.8% over that span.
