Medical Outpatient Real Estate: A Prescription for Portfolio Resilience

By Allan Swaringen, President and CEO, JLL Income Property Trust

As the real estate market continues its path toward recovery and core investors seek sectors that deliver both long-term income stability and appreciation potential, we believe medical outpatient properties represent a compelling addition to any core real estate portfolio. Current market dynamics, structural tailwinds, and demographic drivers have combined to create remarkable resilience for this sector, making it an essential component of a diversified investment strategy.

A Fundamental Shift in Healthcare Delivery

We’ve been witnessing for years a profound transition in healthcare delivery that favors outpatient facilities over traditional hospital settings. This shift is driven by both patient convenience and significantly lower costs. Outpatient urgent care tends to cost much less than hospital emergency room visits for common diagnoses, and advances in medical technology have enabled many procedures once requiring hospitalization to be safely accommodated in outpatient facilities.

The numbers tell a compelling story. This greater convenience and accessibility of outpatient treatments over the past decade have contributed to a 10% decline in hospital admissions while outpatient visits increased 13% (Nuveen Real Estate; American Hospital Association, June 2025).

According to research from our sponsor JLL, this trend is expected to accelerate, with outpatient volume growth in the U.S. projected at 10.6% over the next five years while hospital inpatient volumes are expected to increase less than 1%. This has also propelled job growth in the sector, with medical outpatient employment rates outpacing both traditional office employment and overall employment levels since the pandemic (Revista, Moody’s. January 2026).

Built-In Stability

The sector’s resilience becomes even more evident when considering its unique tenant needs. Unlike the shift toward remote work that has fundamentally disrupted the traditional office sector since the pandemic, medical care remains largely in-person. The physical improvements built into these buildings are specialized enough that conversion from other property types is exceptionally difficult. When tenants invest heavily into these spaces, the probability for lease renewal tends to be higher, leading to more durable income for owners.

Rising interest rates since 2022 caused construction financing constraints that led medical outpatient construction to plummet, reaching an all-time low of 0.8% of inventory in the fourth quarter of 2024. Remarkably, according to JLL Research, 92% of that limited new construction is already pre-leased. These supply constraints support existing property values while steady rent growth contributes to expanding net operating income, and this limited supply had led healthcare tenants to exhibit high retention rates. Average lease terms for medical outpatient spaces over 10,000 square feet reached 107 months for new leases as of the end of 2024, according to JLL Research and Revista. As a result, vacancy rates for medical outpatient properties remain at very low levels which should support continued rent growth (Revista, Moody’s. January 2026). Property types with these long-term tenant commitments provide the stability and built-in NOI growth that investors prize.

Powerful Demographic Tailwinds

The healthcare real estate sector is positioned to benefit from demographic and structural forces that operate independently of traditional economic cycles. U.S. healthcare spending now represents over one-sixth of GDP, significantly exceeding peer nations (Nuveen, OECD Data Explorer, Health Expenditure and Financing Percentage of GDP, September 2025). More importantly, the senior population – with substantially more extensive medical needs – is expected to grow 68% between 2024 and 2040, increasing from 8% to 12% of the total population (Nuveen, OECD Population Projections, 75+ year-old population figures, November 2024). This demographic shift will create sustained demand growth, with a growing percentage of the population accounting for an even larger share of healthcare spending.

With cap rates stabilizing, interest rates normalizing and rental rates increasing, we view the beginning of this recent real estate cycle as an opportune time to consider an allocation to this sector. Key demand drivers and solid fundamentals have combined to bolster the resilience of high-quality medical outpatient properties. When considering the factors at play in today’s environment, we would give the sector a clean bill of health and anticipate its continued stability as a component of a diversified core real estate portfolio.

Allan Swaringen is a managing director at LaSalle Investment Management and president and chief executive officer of JLL Income Property Trust, where he oversees LaSalle’s private wealth offerings. Swaringen is responsible for all financial, investing and operational functions of the REIT.

The views and opinions expressed in the preceding article are those of the author and do not necessarily reflect the views of AltsWire.

Visit the AltsWire directory page.