February 16, 2026
The outlook for healthcare real estate (HRE) in 2026 and beyond is broadly optimistic, though tempered by lingering market and policy uncertainty. Fundamentals remain strong: national occupancy is near 93%, rental rates are rising 3–5% annually depending on market, and construction activity remains below historical norms. With interest rates expected to trend downward in 2026, capital markets activity is likely to accelerate.
Healthcare Industry Overview
Rising Spending Masked by Reimbursement and Labor Pressures
Any assessment of healthcare must account for mounting operational pressures and policy uncertainty, both of which directly influence healthcare systems’ real estate strategies.
Healthcare spending continues to grow at record levels, with total U.S. expenditures estimated at $5.25–$5.3 trillion in 2024—more than 8% annual growth and well above GDP. Spending now represents approximately 18% of GDP and is projected to exceed 20% by 2033. Growth is driven by increased utilization, technological advancements (including AI), and inelastic demand from an aging population. At the same time, rising costs are intensifying concerns around affordability and long-term sustainability.
Labor remains the industry’s largest and most volatile expense, accounting for 50–60% of provider costs. Workforce shortages and intense competition have driven higher wages, signing bonuses, and enhanced benefits. While automation and AI offer long-term potential, the capital required for implementation restrains near-term adoption. Balancing labor costs with quality care will remain one of the industry’s most complex challenges.
Despite historic spending levels, reimbursement uncertainty persists. Hospitals face evolving government policies, shifting payer mixes, value-based care transitions, and rising technology costs—all of which complicate revenue forecasting and long-term planning. As a result, many healthcare systems are taking a conservative approach to real estate decisions, including consolidating into owned facilities, reducing space commitments, or delaying action until greater clarity emerges.
Market Conditions
The same forces shaping healthcare operations are influencing HRE fundamentals. Occupancy and rental rates continue to rise, while new supply remains constrained. These conditions set the stage for tighter markets and increased competition for high-quality assets heading into 2026.
2026 Outlook and Predictions
Limited Availability Will Constrain Expansion
National occupancy climbed to approximately 92.7% in 2025 and is expected to rise further in 2026. In many markets, expansion and relocation options will be limited. Replacement space, where available, will command premium pricing due to surging costs in raw material and construction over the last few years.
Midwest ENT, Lakeville, MN
Midwest ENT • Lakeville, MN
Supply Constraints Will Drive Rental Growth
Strong tenant demand combined with modest new deliveries will continue to push rents higher. New clinical developments in markets such as Minneapolis are expected to command $35–$40/SF NNN, with surgical space exceeding $40/SF NNN. Tenant improvement allowances for full buildouts now range from $80–$100/SF representing an increase of $10–$15/SF above pre-pandemic levels. Annual rent growth has moved above 3% and is expected to track inflation, which the FED is forecasting to remain elevated relative to historical norms.
Cost Pressures Force Users to Reconsider Strategy
Healthcare users accustomed to leasing existing space are increasingly experiencing sticker shock as development, leasing, and property tax costs rise. In high-tax markets such as Minneapolis, occupancy costs can squeeze operating margins, prompting users to reassess expansion plans and explore alternative strategies.
Capital Markets Strengthen as Rates Decline
As of December 2025, the Federal Reserve’s target rate stands at 3.50%–3.75%, with expectations for one to two additional cuts in 2026. Cap rates are already compressing, with trophy assets trading in the high-5% range and stabilized outpatient facilities generally between 6.0% and 8%, depending on asset quality and tenant credit.
Further rate cuts should accelerate cap rate compression, particularly for high-quality and credit-backed assets. Credit STNL transactions are expected to trade in the mid-6% cap range, while large portfolio sales may push into the high-5% cap range for the first time since early 2022. Declining bank spreads and more favorable loan terms will further enhance deal economics.
Construction Costs Remain Elevated
Healthcare construction costs continue to outpace other sectors, driven by sustained demand for modern facilities and lingering supply-chain constraints. While slower development activity has eased competition for labor and materials, pricing has yet to meaningfully decline. Absent a broader economic downturn, material reductions in construction costs appear unlikely. Long-term tariff risks—particularly involving steel, concrete, and lumber—could further pressure pricing.
Deal Activity Accelerates
Capital that retreated following the rate spike in 2022 is returning as conditions improve. Owners previously constrained by refinancing challenges are beginning to see relief, and deal velocity is expected to rise through 2026 and 2027. Large portfolios are increasingly coming to market, supported by strong institutional demand and modest cap rate premiums that are once again sufficient to spur activity.
Looking Ahead
Healthcare real estate remains a fundamentally “need-based” asset class, supported by demographic trends, inelastic demand, and the ongoing shift toward outpatient and community-based care. While the healthcare industry faces meaningful operational and reimbursement challenges, these dynamics have not diminished the long-term demand for well-located, high-quality medical facilities.
Rather than serving merely as a defensive allocation, healthcare real estate has matured into a core investment asset—one positioned for sustained relevance and growth as the U.S. population ages and care delivery continues to evolve.
The full content of this article is only available to paid subscribers. If you are an active subscriber, please log in. To subscribe, please click here: SUBSCRIBE
