Healthcare vital signs: Healthcare developers

What is true right now

Tenants are paying a 38% premium for new space because there is no alternative, and your competition is not building.

That is the whole development case in one sentence, and the data underneath it is unusually clean. The opportunity is real. The discipline is knowing which path to deliverable space actually pencils.

Expansion is the most expensive square footage in the market, so price it honestly.

Expansion averaged $730 per square foot from 2024 to 2026, the priciest path to new medical space and 27% above ground-up. Adding to an existing asset has to clear a higher rent hurdle than most sponsors underwrite. Knowing that up front keeps a good project from becoming a stranded one.

Starts are falling for a reason worth understanding.

Hospital starts have dropped to a series low of 14.8 million square feet on a 12-month trailing basis. The constraint is capital cost and health system balance sheets, not demand. Sponsors who solve for cost of capital, and who pre-lease, are the ones who deliver into the gap everyone else left open.

Where the opportunity is

$9.63 per square foot is the clearest development signal in the market.

New medical office buildings command $35.06 per square foot triple net against $25.43 for existing product, a 38% premium that has widened every year since 2017. Tenants pay it because modern, efficient, well-located medical space does not exist in enough quantity. That premium is the return on solving the supply problem.

Conversion just went mainstream, and it is 28% cheaper.

Conversions tripled from 4% of medical office deliveries in 2019 to 12% in 2026, at an average cost of $415 per square foot versus $574 for ground-up. In supply-constrained infill markets, conversion is now the fastest, lowest-basis route to deliverable medical space.

Whoever delivers in 2027 delivers into a vacuum.

Supply growth is 1.1%, hospital starts are at a series low and absorption has outpaced completions for three years. Projects breaking ground now arrive in a market with almost no competing delivery, and health systems that paused their own construction become real candidates for build-to-suit.

Texas, Florida and Nashville are where the pipeline already points.

Texas holds the largest combined medical office and hospital pipeline in the country. On a percentage basis, Nashville (3.9%), Jacksonville (3.4%) and Miami (3.2%) are adding supply fastest relative to inventory, useful both as target markets and as a check on where competitive delivery is concentrating.

Learn more about Northmarq’s National Healthcare Group

Source and Copyright: Revista. Data believed to be accurate but not guaranteed and subject to future revision. Use of this data is permitted subject to the terms and conditions detailed on data.revistamed.com/terms-of-use and with proper credit to Revista or Revistamed.com.