2025 U.S. Healthcare Real Estate Outlook

• An aging population, growing healthcare spending and transformative technologies will underpin demand for U.S. healthcare real estate in 2025.
• Medical Outpatient Buildings (MOBs) are well-positioned to benefit from these trends, as well as from evolving consumer preferences for accessing healthcare in more convenient locations, typically outside of traditional hospital campuses.
• The overall MOB vacancy rate fell in 2024, as average asking rents rose despite a robust pipeline of deliveries. MOB capital markets activity improved considerably by mid-2024, with the first increase in annual sales transactions and the first decrease in cap rates since mid-2022.
• MOB construction is primarily occurring outside of traditional hospital campuses, reflecting a trend of bringing healthcare services closer to residential populations. Despite this decentralization trend, MOB developments adjacent to or directly on hospital campuses are 150% larger than off-campus properties largely because physicians prefer to remain near hospitals, which allows them to receive more favorable insurance reimbursement rates.
• Labor availability remains problematic for the U.S. healthcare system, contributing to a growing focus on new technologies like artificial intelligence to fulfill certain roles and help alleviate pressures on the healthcare workforce.
• Easing inflation and expected interest rate cuts in 2025 should reduce economic uncertainty for occupiers and result in improved MOB leasing and sales transaction activity. Average MOB rent is projected to rise as supply and demand remain generally balanced.

The Aging U.S. Population & Healthcare Spending

No trend is driving U.S. healthcare demand more than the aging American population. By 2030, the entire baby boomer generation will have reached retirement age, increasing the U.S. population’s share of senior citizens (age 65+) to 20% (70 million) from 17% (61 million) in 2024. Seniors are expected to increase total outpatient healthcare spending by 31% over that time to nearly $2 trillion.

A disproportionate share of healthcare spending is driven by the higher-growth 65+ age cohort, which comprises just 17% of the U.S. population but accounts for 37% of its healthcare spending. For those under 65, who account for 63% of the nation’s healthcare spending, improved U.S. economic growth and lower inflation by the end of 2025 should support resilient consumer healthcare spending. Forecasts suggest that inflation-adjusted consumer spending on healthcare goods and services will rise by 2.5% in 2025, exceeding the 1.9% growth for consumer spending on all goods and services for the fourth consecutive year.

Figure 1: Share of U.S. Population & Healthcare Spending by Age Cohort

The growing American senior population is fueling increased healthcare spending. While the most recent data on annual healthcare spending per capital for Americans under 64 averages approximately $8,000, it rises to $20,000 for those aged 65 to 84 and more than $35,000 for those over 85. The latter two groups are projected to grow by 17% and 56%, respectively, by 2034. Metropolitan areas with fast growing senior populations will need adequate healthcare infrastructure and staffing to accommodate rising demand for healthcare services.

Figure 2: Per Capita Healthcare Spending & Projected Population Growth by Age Cohort

U.S. consumers continue a multi-decade trend of increased spending on healthcare goods and services, which includes outpatient and hospital services as well as medical appliances and equipment. A record 22% of all inflation-adjusted consumer spending in 2023 was on healthcare goods and services.

Figure 3: Share of Total U.S. Consumer Spending on Health Goods & Services

Labor Supply

Although the U.S. economy slowed in mid-2024, consensus forecasts suggest that a recession likely will be avoided as employment continues to grow, albeit at a slower pace. CBRE Research forecasts a loosening labor market in which the unemployment rate rises mildly to 4.4% by year-end 2025 but remains below the 10-year (2014–2023) average of 4.9%.

Figure 4: U.S. Employment Growth & Unemployment Rate, 2021-2025

The healthcare sector continues to add employees at a rapid clip. Healthcare employment grew by 4.7% year-over-year in Q1 2024, far exceeding total employment growth of 1.8%. Increasing demand for outpatient services, specialty medical practices and home care services continues to drive healthcare employment growth, which is expected to outpace total U.S. job growth for years to come.

While hospitals remain the principal point of care for acute cases and complex surgical procedures, an ongoing shift in location where outpatient and behavioral care services are delivered has benefited commercial property markets. Thirty percent of healthcare professionals work in outpatient facilities, 24% in inpatient facilities and the remainder in other settings, including labs, social services offices and home or residential care.

MOB-based employment grew by 13% between 2019 and 2024, compared with 6% for hospital employment. MOBs optimize operational efficiency and reduce costs for institutional healthcare providers, while providing more convenience for patients. The increasing need for behavioral health services is also driving demand for MOB space to house a growing number of therapy, psychology and other mental and emotional health treatment practices.

Figure 5: Healthcare Employment Growth by Facility Type

High demand for healthcare services, fueled by an aging population, will need to be met by a dependable pipeline of skilled healthcare workers. While healthcare employment is outpacing overall U.S. employment growth, labor shortages pose a potential risk to the industry. Quit rates in the healthcare industry have averaged 1.5 million per quarter since Q1 2020, compared with 900,000 per quarter for the 10 preceding years. The acceleration in quit rates reflects a workforce with more members reaching retirement age and also burning out due to surging healthcare demand.

Extremely tight labor conditions are challenging America’s health systems. The unemployment rate for healthcare practitioners and associated technical occupations was 1.7% in July 2024, well-below the 4.5% for all occupations.

These tight conditions likely are what led to the largest healthcare strike on record in 2023, when 75,000 workers from one of the nation's largest health plan providers balked at low pay and persistent staffing shortages. The healthcare labor shortage will probably remain a top priority for healthcare leaders for many years to come, especially as the older population surges alongside more complex health issues.

Figure 6: U.S. Healthcare Employment & Quits, Q1 2010–Q1 2024

The Continued Rise of Outpatient Care

Increasingly sophisticated technology is enabling more medical procedures to be performed in outpatient facilities, including hospital outpatient departments, surgical centers and physician offices. Reflecting the growing number of less-invasive procedures facilitated by better technologies, 59 medical procedures were added to the Ambulatory Surgical Centers’ payable list by the Centers for Medicare & Medicaid Services between 2018 and 2023. As technology continues to advance, more procedures likely will shift from ambulatory surgical centers and hospitals to medical outpatient facilities.

The considerably lower cost to perform these procedures in outpatient settings is driving more patients away from hospitals. For example, the average cost of a gallbladder operation has been as high as $12,000 in a hospital versus only $2,200 in an ambulatory surgical center. As a result, more insurance providers are pushing patients to outpatient facilities for certain medical procedures.

Figure 7: U.S. Outpatient Visits per 1,000 People

Lower costs in medical outpatient buildings also benefit consumers and healthcare practitioners. One high-profile analysis by United Health Group determined that consumers can save 59% on average by having a procedure completed in an ambulatory surgical center versus a hospital. For doctors, higher facility fees charged by hospitals can make performing procedures in an outpatient setting more desirable.

Beyond costs, various surveys continue to show that consumers’ desire for more conveniently located healthcare facilities is one of their highest priorities. These locations are commonly away from traditional hospital campuses.

Data from the American Hospital Association confirms that Americans are using medical outpatient facilities more frequently. Outpatient visitation grew to 2.4 visits per patient in 2022 from 1.8 visits in 2000. As outpatient medical facilities become larger and more sophisticated, this growth in outpatient services is expected to continue.

AI’s Growing Potential To Manage Healthcare Real Estate

Advancements in artificial intelligence (AI) present a significant opportunity for healthcare systems to address challenges posed by strained resources and scarce labor.

AI’s ability to process and analyze massive amounts of data and inputs can lead to more medical discoveries and better diagnostics. It also enables healthcare practitioners to focus on other priorities, such as patient engagement, that can ultimately lead to improved health outcomes. For example, one AI solution transcribes patient-provider conversations into required clinical documentation fields, reducing documentation time in half. Enhancements such as these will help alleviate some of the labor resource issues challenging the industry.

Other ways for AI to alleviate labor shortages include telehealth services performed by increasingly effective chatbots that can assess the severity of an issue and whether a patient needs an in-person medical evaluation.

AI also can help make more efficient use of healthcare real estate by effectively acting as an omnipresent facility manager that offers predictive maintenance, energy management, security and space optimization solutions, among others.

Despite the various early successes and even greater opportunities to harness the potential of AI in healthcare, there are certain limitations and challenges. Risks associated with privacy, security and data accuracy remain hurdles for more widespread use of AI by healthcare providers.

Shifts In Site of Care

Although annual MOB construction deliveries have been consistent over the past decade, demand has remained strong and is expected to increase in the near-term. CBRE expects that occupied MOB space will reach a record amount over the next year.

While only 19% of non-user-owned MOBs currently under construction are adjacent to a hospital campus, they account for 40% of the total amount of MOB space under construction as developers attempt to satisfy growing space requirements by institutional healthcare providers. The average size of a hospital-adjacent MOB is 66,900 sq. ft., allowing major healthcare centers to move outpatient services to off-campus facilities that are within walking distance of their primary hospital.

Eighty percent of new medical outpatient buildings are being developed farther away from hospital campuses in residential and retail districts. This allows institutional and private medical practices to bring healthcare closer to patients and can appeal to smaller and more specialized practitioners. The average size of a new MOB that is not adjacent to a hospital campus is 26,500 sq. ft.

Figure 8: MOBs Under Construction & Hospital Campus Adjacency

Healthcare systems have accounted for 31% of all leasing activity by healthcare-related businesses since 2019. Large transactions for dedicated administrative space, which accounted for more than 2.2 million sq. ft. or 67 % of the total space leased by healthcare systems in 2019, dropped to 700,000 sq. ft. per year on average between 2020 and 2023. Conversely, space leased by healthcare systems for patient services rose from 1.1 million sq. ft. in 2019 to 1.2 million sq. ft. annually on average between 2020 and 2023.

Although healthcare systems continue to consolidate and reduce their administrative footprint, the need to make healthcare accessible to the public—primarily through hospital-affiliated urgent care clinics, surgery centers and medical outpatient facilities—is supporting demand for MOBs.

While hospitals and healthcare systems signed more leases in 2021 and 2022 than they did in pre-pandemic years, their total lease count fell in 2023. Their leasing volume also fell to 1.6 million sq. ft. in 2023 from 2.2 million sq. ft. in 2020 and 1.9 million sq. ft. in both 2021 and 2022. Much of this demand has been from major healthcare systems establishing medical outpatient facilities in suburban communities, closer to where their patients reside. Smaller facilities with specialized outpatient care can save patients and medical staff time and money by preempting long trips to centralized healthcare campuses.

An analysis of leasing data shows that major medical providers lease space in a variety of property types, including purpose-built and state-of-the-art MOBs, traditional office buildings and former anchor-tenant spaces in shopping malls. This flexible approach to leasing is driven by a desire to make their locations more convenient for patients and to scale their capacity in a time of rapidly rising demand.

Figure 9: Healthcare System/Hospital Leasing Activity by Intended Use

Institutional & Independent Provider Leasing

Overall healthcare leasing activity remains below pre-pandemic levels, due in part to the absence of large healthcare systems signing leases for administrative space. Non-patient-facing operations dominated healthcare real estate requirements before the pandemic but have since been reduced due to the rise in hybrid working arrangements.

As of Q2 2024, healthcare leasing was 72% of the 2019-to-2023 quarterly average. However, independent healthcare providers, including private medical practitioners, surgery centers and unaffiliated urgent care providers, grew their share of overall healthcare leasing.

Figure 10: New Healthcare Leasing by Occupier Type

Average lease sizes for administrative purposes have fallen by 37% to 53,900 from 86,100 sq. ft in 2019. Downsizing has been less severe for patient-facing operations, ranging from a 5% drop for healthcare systems to a 20% drop for private medical providers. While administrative downsizing offers opportunities to optimize real estate space, patient-care requirements compel healthcare providers to retain sizable real estate portfolios.

While total volume by square footage is down, the number of leases for administrative operations of institutional and independent healthcare providers has remained relatively stable. Conversely, the number of leases for patient-care provision has risen gradually.

Private medical practitioners have been signing significantly more leases since Q1 2019. Surging demand for specialist healthcare services has propelled leasing by independent providers even as the average size of those leases has declined modestly.

Figure 11: Average Lease Sizes by Healthcare Occupier Type

Triple-net asking rents increased by 1.4% year-over-year in Q2 2024 to a record average of $24.86 per sq. ft. Vacancy fell by 4 percentage points from 2010 to 2023 and has since been moderating. A robust pipeline of new product has slowed the vacancy rate’s decline, while a flight-to-quality by occupiers has driven rent growth at the best properties. Rent growth of between 1.4% and 1.8% is expected over the next two years, while the vacancy rate is forecast to fall below 9.5%.

Figure 12: MOB Average Asking Rent & Vacancy Rate

Figure 13: MOB Triple-Net Asking Rent

While the pandemic temporarily halted leasing activity, MOBs recorded positive absorption by the end of 2020. However, demand softened in 2023 after six consecutive quarters of absorption outpacing completions.

Construction completions have tapered off since peaking in Q1 2023, largely due to rising costs. The deceleration in completions, combined with resurgent leasing activity, resulted in demand outpacing supply in Q2 2024. Loosening credit conditions and falling inflation should have a positive effect on supply-and-demand balance in 2025.

Figure 14: MOB Construction Completions & Net Absorption

CBRE forecasts that Boston, Houston and Dallas will lead for MOB absorption in 2025. Houston, consistently the top market for MOB absorption since 2020, is expected to cede the top spot to Boston next year. With approximately 700,000 sq. ft. forecast, it will be the first year since 2021 that Houston records less than 1 million sq. ft. of MOB absorption.

Figure 15: Top 20 Markets for Forecast Absorption in 2025

Many top markets for absorption are also leading in MOB completions. The largest projects currently under construction nationwide are either hospital-campus or campus-adjacent outpatient centers with significant government or institutional healthcare provider backing.

Top markets for new construction include New York, Washington, D.C. and Dallas. In other markets, rapid population growth has spurred demand for new construction of smaller facilities in outlying suburbs. This is most evident in Dallas, Houston, Orlando, Phoenix and Atlanta.

Figure 16: MOB Space Under Construction as Percentage of Existing Inventory

Capital markets activity for MOBs has begun to improve. Q2 2024 saw the first quarterly increase in investment activity since mid-2022, with volume up 60% quarter-over-quarter and 38% year-over-year to $2.5 billion. The prospect of lower interest rates should support further investment activity in 2025.

On a rolling-four-quarter basis, Q2 2024 sales volume grew by 9.7% from the previous quarter.

Figure 17: MOB Investment Volume

Washington, D.C. led the nation for rolling-four-quarter sales volume in Q2 2024 totaling $381 million, a 73.2% year-over-year increase. Other markets with notable year-over-year increases in rolling-four-quarter sales volume were Chicago (+33.6% to $291.4 million), Minneapolis-St. Paul (+269% to $135.2 million) and Tucson (+579% to $211.7 million).

Average pricing of MOBs also increased by $3 quarter-over-quarter in Q2 to $291 per sq. ft., the second consecutive quarterly increase after six consecutive quarters of decline. The average MOB cap rate fell by 10 basis points (bps) quarter-over-quarter to 6.9%, the first quarterly decrease since Q2 2022. The gap between MOB and traditional office cap rates hit a record 50 bps in Q2 2024, with the average office cap rate at 7.4%.

Figure 18: MOB Average Price per Sq. Ft.

Figure 19: MOB Capitalization Rates

The outlook for MOB capital markets activity in 2025 appears favorable due to lower inflation and interest rates. Consequently, commercial real estate investor sentiment is improving.

Figure 20: Real Estate Investor Sentiment Index

Healthcare real estate investment trusts (REITs) appear to be benefiting from the improved investment outlook. Over the past year through August, healthcare REITs’ total return has exceeded all major property types, including multifamily, industrial, retail and office. A favorable spread also exists between MOB cap rates and the risk-free Treasury rate, especially compared with the tight spreads for warehouses and apartments and the more significant risks associated with office and retail.

Figure 21: FTSE NAREIT Equity Return Indexes

Figure 22: Spread Between Cap Rates & 10-year Treasury Yield