Medical office fundamentals have stayed steady, supported by measured development, stable investor demand and resilient pricing, while demand patterns continue to diverge across regions and policy uncertainty adds modest pressure.
Deliveries are expected to total about 10 million square feet in 2026, broadly in line with long-term averages and well below traditional office construction levels, according to Marcus & Millichap's first-half medical office update. New supply continues to support occupancy stability despite shifting demand conditions.
Development remains concentrated in growth states. Texas is projected to lead with roughly two million square feet of deliveries, followed by Florida at about one million. California, Arizona and Ohio are each expected to add about 500,000 square feet, reflecting continued alignment between medical office construction and population growth corridors.
Absorption patterns have become more mixed. Houston, Orlando and Chicago posted strong gains in 2025, while Los Angeles, Miami, Portland and Philadelphia recorded net negative absorption, pointing to softness in select coastal markets.
That came while Austin's vacancy spiked by 100 basis points, indicating supply is beginning to outpace demand in some high-growth metros.
National vacancy is projected to reach 9.2% by year-end, the highest level in a decade, marking a gradual normalization in occupancy conditions after several years of tighter fundamentals.
Midwestern metros remain relative standouts. Columbus, Detroit, Kansas City and Minneapolis–St. Paul each recorded vacancy declines of more than 100 basis points in 2025. Performance in these markets reflects affordability advantages, aging demographics and migration toward lower-cost healthcare delivery systems.
National transaction activity rose approximately 33% over the past 12 months ended in March, reflecting improved liquidity. While sub-$10 million deals still account for most activity, institutional participation is expanding. Transactions above $10 million increased more than 67%, while deals over $20 million doubled.
Buyer demand includes REITs, healthcare-focused funds, private equity and health systems pursuing owner-user strategies. Pricing remains firm, with cap rates near 7.5%, while well-located post-2000 assets continue trading in the 6% range. Average pricing rose to about $313 per square foot.
Las Vegas and Phoenix saw declines in activity as cities struggled with vacancy; rate were above 10% following rapid supply growth. Riverside-San Bernardino and San Diego also softened on weaker in-migration trends. Meanwhile, Houston, San Antonio, Boston and Denver more than doubled transaction volume over the past year, supported by strong healthcare employment bases and continued inflows of medical professionals.
Long-term structural drivers remain supportive for medical office real estate. The population aged 65 and older is projected to rise from 64 million in 2025 to nearly 75 million by 2035, sustaining outpatient demand and healthcare employment continues to expand, reinforcing absorption trends.
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