Healthcare tenants across the U.S. are running into a growing shortage of outpatient space just as demand continues to shift away from hospitals and into suburban markets.
A new analysis from Josh Kurstin, senior vice president at Colliers in Nashville, finds that quality, well-located medical office space is increasingly difficult to secure, with competition intensifying in many markets.
"The reality is not subtle: quality, well-located medical office space is increasingly scarce and the leverage that once favored tenants has quietly shifted," Kurstin wrote.
While Nashville suburbs such as Brentwood and Franklin are among the most constrained, the trend is playing out nationwide as healthcare delivery becomes more decentralized. Providers are expanding outpatient services closer to where patients live, particularly in fast-growing suburban areas, but new supply is not keeping pace.
At the same time, development activity has slowed sharply. Construction starts for medical office buildings fell 45% year over year, pressured by higher borrowing costs, elevated construction expenses, and complex regulatory requirements. Even as new supply declines, occupancy has climbed to its highest level in five years, further tightening availability.
"The forces pushing healthcare tenants into suburban markets are structural, long-duration, and essentially immune to economic cycles," Kurstin noted, pointing to an aging population, rising demand for specialized outpatient care, and continued suburban population growth.
Those dynamics are creating a mismatch between supply and demand. Unlike traditional office or retail space, medical office properties require specialized buildouts, strict regulatory compliance, and significant infrastructure investment, all of which extend timelines and increase costs. As a result, fewer projects are moving forward.
According to PwC and the Urban Land Institute's Emerging Trends in Real Estate 2026 report, the national medical office pipeline has dropped to about 33.5 million square feet, near a cyclical low. Completions continue to outpace new starts, meaning existing space is being absorbed faster than it is replaced.
With ground-up development constrained, some providers are turning to adaptive reuse, converting older retail centers, former pharmacies, and traditional office buildings into outpatient facilities. Still, these opportunities are limited and often require significant capital to meet clinical standards.
Against that backdrop, competition for available space is intensifying, particularly in high-growth suburban corridors where multiple providers may be targeting the same locations.
Kurstin advises healthcare tenants to adjust their real estate strategies accordingly. That includes starting site searches earlier—often 18 to 24 months in advance—considering nontraditional locations, and carefully weighing renewal versus relocation decisions.
"In growing suburban markets across the country, the path forward runs through clear-eyed market awareness and purposeful, well-timed action," he said. "The window for optionality stays open longest for those who move first."
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