Provider demand is strong enough to justify building, HREI™ board members say
By John B. Mugford
During the recent HREI Editorial Advisory Board meeting in Nashville, Tenn., the board members involved in development explored the seeming paradox of increasing project starts despite construction costs that hit an average of $558 per square foot in 2025. (HREI™ photo)
Medical outpatient building (MOB) construction costs hit an all-time high of $558 per square foot (PSF) last year, yet development activity increased anyway because provider demand has been strong enough to justify the added expense.
That was the consensus of a group of healthcare real estate (HRE) developers and investors who gathered in mid-April for the annual HREI™ Editorial Advisory Board meeting in the boardroom at the headquarters of Healthcare Realty Trust (NYSE: HR) in Nashville, Tenn. HREI and its board were the guests of HR, whose president and CEO, Peter A. Scott, made a guest appearance at the meeting to update the group on the firm’s corporate transformation plan and answer a few questions.
As has been the case at each of the previous 19 annual meetings of the HREI board, the day included an update on the business by Founder and Publisher Murray W. Wolf, as well as an “off-the-record” discussion of the current state of the HRE and MOB space, touching on the political landscape, the state of the nation’s health systems and a range of other topics.
The HREI annual meeting also always includes an “on-the-record” segment during which board members, who represent many of the HRE sector’s top firms across a variety of disciplines, share their opinions and insights on the current market conditions and what might lie ahead. The lengthy discussion covered numerous topics, but this article focuses on the views of those who commented on development.
HREI board members acknowledged that HRE development – although it did indeed pick up a bit in 2025 after a slowdown during the previous two years – remains fraught with challenges and obstacles to growth, including the aforementioned high construction costs, which result in historically high rental rates in new buildings, as well as climbing tenant improvement (TI) price tags.
Yet, Revista, the Arnold, Md.-based HRE data firm that reported last year’s record-high average construction cost, also noted in its recent annual Outpatient Real Estate Development Report that the amount of MOBs started in 2025 was up nearly 18 percent to more than 21.7 million square feet, compared with about 18.4 million square feet in 2024 and about 19.9 million square feet in 2023.
During the HREI meeting, board members explored this seeming paradox of increasing development activity despite record construction costs.
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