For years, low-cost capital made it easier to build, acquire, and expand across healthcare real estate. That environment has shifted.

In today’s higher-rate environment, commercial real estate is still working through a pricing reset, with research noting that cap rates may face further upward pressure if interest rates remain elevated and income growth lags.

Even so, healthcare real estate is holding up differently than most sectors — staying steady relative to other asset classes, supported by consistent demand and the non-discretionary nature of care delivery.

The Pipeline Is Slowing, Not Stopping

Development has not stopped, but it is moving with more restraint. Per Gordian, the average cost per square foot for new construction of hospitals is more than 25% higher than it was in 2021. Larger projects are facing closer scrutiny, especially as costs remain uncertain and timelines extend. Many groups are waiting for pre-leasing milestones or breaking projects into phases before committing capital.

That same dynamic is shaping how health systems approach real estate. With higher borrowing costs and ongoing operational pressure, decisions are more targeted. Broad expansion has taken a back seat to projects that improve access, increase efficiency, or support key service lines.

Existing assets are also getting more attention. Renovating or repositioning a building can often deliver results faster and with less risk than starting from the ground up. This is especially true in outpatient settings, where flexibility and location tend to matter more than scale.

Partnerships are playing a larger role as well. Joint ventures and developer-led structures are giving health systems a way to grow while preserving capital, helping move projects forward that might otherwise stall. For example, Walsh Construction, Turner Construction, and The Ohio State University recently partnered to complete the Wexner Medical Center University Hospital for $1.5 billion.

Outpatient Demand Keeps Its Momentum

One area that has remained consistent is the shift toward outpatient care. Medical outpatient buildings, ambulatory centers, and specialty clinics continue to see strong demand.

These assets also tend to offer more predictable performance, which becomes more important as financing costs rise. Location remains a key factor, especially in suburban areas where population growth is driving demand. In many cases, outpatient projects are still moving forward even as other types of development slow down.

Overall, MOB investment fundamentals continue to reflect a disciplined but constructive market environment. Capital is increasingly targeting on-campus and near-campus medical office buildings, outpatient surgery centers, and properties tied to higher-acuity care, where long-term healthcare demand provides stability. Despite recent moderation in volume and deal size, these kinds of assets continue to attract significant capital interest, with demand from investors still outpacing available supply.

What This Environment Rewards

A higher-rate environment is not a temporary disruption. It is something the industry is learning to operate within.

Healthcare real estate still benefits from strong long-term fundamentals. Demand for care is not going away, and the shift toward outpatient services continues to create opportunity.

What has changed is the level of discipline required. The projects that move forward today tend to be backed by clear demand, supported by strong tenants, and structured with fewer assumptions.