More patients than ever are visiting medical outpatient clinics, and the need to build more facilities is expected to rise as the population ages.
Few new medical outpatient centers are under construction in the United States, real estate services firm JLL said in its 2026 Medical Outpatient Building Perspective report released Tuesday. The issue is especially acute in fast-growing markets such as Houston and Orlando, Florida.
The dearth of new construction for medical outpatient facilities comes at a time when about 93% of available space nationwide is occupied, according to JLL.
"There needs to be more medical outpatient building development," Brannan Moss, vice chairman and U.S. healthcare lead at JLL, told CoStar News.
That rise in demand and lack of supply are driving rent growth and creating opportunities for investors in some markets. Executives at property investment firms that specialize in healthcare real estate have taken note.
"The fundamentals have never been better in" medical outpatient properties, Scott Brinker, CEO of Healthpeak Properties, said during an industry conference in early March.
He added that "demand is growing because of the aging population, but also because of consumer preference because it's more convenient, the payers prefer it because it's cheaper and the health systems prefer it because it [carries a] higher profit margin."
Supply-demand mismatch
The supply-demand mismatch is very evident in some Sun Belt markets. In Houston, patient visits to outpatient clinics are expected to increase 15.9% through 2029, according to JLL. But the total number of new outpatient properties currently under construction represents less than 1% of the existing supply.
Two medical office properties in metropolitan Houston owned by Healthpeak — Southeast Medical Plaza and Woodlands Medical Plaza 4 — are almost fully leased to tenants that include University of Texas Physicians, Memorial Hermann Health System and Texas Oncology, according to CoStar data. Landlords of properties with tenants that provide "high-margin" specialty services can "command premium pricing," according to JLL's report.
Houston experienced a boom in medical office building construction between 2015 and 2019, with the market's inventory increasing by about 15%, according to CoStar data. The pace has slowed considerably in recent quarters, with about 430,000 square feet under construction — the lowest level on record. Roughly 80% of that space is preleased.
In addition to Houston and Orlando, other Sun Belt markets where construction is not keeping pace with projected growth in outpatient demand include Dallas-Fort Worth, San Antonio, Atlanta, Denver, Phoenix, Tampa and southwestern Florida, according to JLL.
Large healthcare networks, on the other hand, are actively building new hospitals, medical offices and clinics. Big healthcare systems are responsible for about 57% of the healthcare real estate under construction, according to JLL.
In two examples, the University of Pittsburgh Medical Center is constructing a $1.3 billion expansion of UPMC Presbyterian hospital in Pittsburgh, and Good Samaritan Hospital last year started work on its own more than $1 billion expansion in San Jose, California.
New construction
Grady Health System this month announced plans to develop a $1 billion medical campus in Union City, Georgia, south of Atlanta, with an acute-care hospital and medical office building.
The availability of medical outpatient space in a specific market does not improve when healthcare networks are the developers, said JLL's Moss. That's because the healthcare system is locked in as the anchor tenant, and they typically don't provide space to outside physician practice groups or other third-party providers.
Private investors are shunning the development of speculative medical office buildings for a variety of reasons, especially the high cost of construction materials and labor, Moss said.
"It's expensive to build spec medical office and it's highly risky unless you have an anchor tenant already in place," Moss said.
Other factors could stymie the development of new medical office buildings. Construction could be constrained, JLL said in the report, as the firm's "healthcare clients reported that they are prioritizing reducing operating costs, optimizing space utilization and achieving organizational efficiency," in the face of policy changes that would reduce federal reimbursement rates and increase the number of uninsured patients.
A recently announced project in Atlanta could provide a blueprint for developing new medical outpatient space in the current economic environment.
CP Group plans
CP Group intends to convert a portion of the 1980s-era Piedmont Center office park in the city's Buckhead neighborhood to space for medical outpatient clinics. The conversion is slated to include a major renovation of interior spaces and an improved pick-up and drop-off area.
The CP Group project will benefit from the favorable demographics of Buckhead that surrounds Piedmont Center, Moss said. Many suburban office parks would not be suitable for conversion to a medical outpatient because the patient population is spread out and the buildings aren't as conveniently located.
"There are a number of health systems and physician practice groups that would want outpatient facilities in a market like" Buckhead where Piedmont Center is located, Moss said.
The lack of available properties has helped owners of medical outpatient real estate retain a large majority of tenants. Tufts Medicine in Boston recently agreed with landlord Healthcare Realty Trust on an eight-year extension of its 154,000-square-foot lease at the Biewend Building in Boston. Healthcare Realty Trust also recently renewed leases with Baptist Memorial Health Care in Memphis, Tennessee.
Steady, growing demand for outpatient care should continue to fuel investor interest in the property type. That constant demand is one reason that Remedy Medical Properties and Kayne Anderson Real Estate partnered last year on their $7.2 billion acquisition of 296 medical outpatient facilities from Welltower.
"Outpatient medical real estate continues to demonstrate strong, durable fundamentals," David Selznick, chief investment officer at Kayne Anderson, said at the time of the acquisition, "supported by demographic trends and the ongoing shift toward cost-effective community-based care."