Outpatient healthcare providers are increasingly locating in traditional offices and retail buildings, a report by commercial property firm JLL says. That could pose management challenges for these types of spaces.
Limited space in existing medical outpatient buildings and the high cost of construction for these specialized types of buildings are creating a spillover effect in which providers are moving into other property types.
“Construction starts [of MOBs] were at an all-time low in Q4 2024 at only 0.8% of inventory, compared to 2.1% of inventory in Q4 2017,” says JLL in its 2025 report on the market for medical outpatient buildings. “Construction was 92% preleased in Q4 2024, leaving options limited for tenants looking for new space.”
Medical outpatient buildings are defined by how much space is built out for medical tenancy, typically 50% to 70%, according to the report.
MOB absorption topped 19 million square feet for the top 100 markets, an increase of 15% from full-year 2023, the report says. MOB occupancy reached 92.8% in Q4 2024, up from 92.4% one year prior.
With limited availability and few new spaces on the horizon, healthcare tenants are increasingly considering office and retail space that is near their target patient population or near a hospital campus. Last year, just under a quarter of outpatient healthcare providers moved their practice into a non-medical office building, 8% moved into a retail building and 11% moved into another type of healthcare facility, according to the report. A handful of others moved into an unspecified type of building, leaving just over half that moved to another MOB site.
Not all owners of these other property types want outpatient providers moving in. “Traditional office landlords may … be hesitant to lease to healthcare uses given increased foot traffic, negative impact to parking ratios and increases in operating costs,” the report says.
The shift to other property types works best for low-acuity specialties, like psychiatry, because their space needs are closer to that of a typical office or retail tenant, while higher acuity specialties, like cancer and cardiovascular services, have more intensive infrastructure needs.
“Medical office conversions for higher acuity or resource intensive services like imaging can be difficult due to the cost of renovations and adding electrical and plumbing,” the report says.
For providers who stay in purpose-built MOBs, rents are up. The year-over-year growth rate in asking rents was 2.5% last year. Rent growth slowed down from a 3.7% increase in 2023, but remains high for healthcare tenants, who tend to have low operating margins, typically under 5%. “Due to their slim operating margins, healthcare tenants cannot afford steep jumps in rent,” the report says.
As with offices in general, rental rates are growing fastest at the high end of the market. Rents in the 90th percentile of the 100 biggest markets grew at a 2.4% compounded annual growth rate from 2019 to 2024, compared with 1.8% for rates in the 50th percentile, says the report, drawing on data from the analytics firm RevistaMed.
