Cushman & Wakefield's latest Vital Signs report finds that the U.S. medical office building sector is extending its momentum despite a higher-for-longer interest rate backdrop. Report authors Sandy Romero, the firm's Head of Office & Alternatives, and Lorie Damon, Executive Managing Director in the Healthcare Advisory Practice, told Connect CRE that the mid-year findings largely aligned with their expectations entering 2026.
According to the report, medical office absorption reached 3,800,000 square feet in the first quarter, a 71% increase from the prior year period. Sector occupancy registered 92.5%, while the amount of space under construction declined by 10%, signaling a tightening supply pipeline even as demand continues to build.
The authors attribute the supply contraction to several forces, including reduced new construction starts and an aging inventory of existing medical office product. They also noted that development of new MOBs competes directly with other property types for a limited pool of suitable sites, further constraining future deliveries.
At the same time, healthcare spending has been on a clear upward trajectory, rising 5.8% over the past decade and 8.5% between 2023 and 2024. This expanding demand base is pressuring existing facilities and pushing operators and providers to explore alternative locations, such as repurposed retail stores or converted traditional office buildings.
The report cautions that not every potential conversion candidate is viable. Some higher-acuity services, including certain surgical procedures, are required by regulation to be performed only in licensed and accredited facilities, limiting the role that retail space can play. Office-to-medical conversions can also be challenging when building infrastructure, such as floor plates, clear heights or plumbing, does not align with healthcare requirements.
Vital Signs highlights several specialties that are driving outpatient growth. Endocrinology visits increased 25.6%, followed by psychiatry at 18.1%, physical therapy and rehabilitation at 16.0%, spine care at 12.9% and cardiology at 9.4%. The authors link rising demand for endocrinology services to increased diagnoses of diabetes and metabolic conditions, as well as new treatment options including GLP-1 pharmaceuticals. Growth in psychiatric care is tied to reduced stigma around mental health and stronger insurance coverage and reimbursement, with the COVID-19 pandemic underscoring previously unmet behavioral health needs.
The report also examines the fallout from the expiration of Affordable Care Act insurance subsidies earlier this year. Higher premiums led roughly one in ten enrollees to drop coverage, and sign-ups for 2026 ACA plans slipped to 23 million from 24.2 million the prior year. Health systems, Romero and Damon noted, expect higher levels of uncompensated and underinsured care, though the impact on procedure volumes and specific specialties remains uncertain.
Demographic trends provide a counterweight to near-term coverage concerns. The report points out that by 2060, one in four Americans will be 65 or older, which is expected to underpin long-term demand for healthcare services largely funded through Medicare.
Looking ahead, Cushman & Wakefield forecasts continued scarcity of medical office supply, sustained tight occupancy and rents that are stable to rising. Construction activity is expected to stay constrained and pick up primarily in markets where limited existing availability justifies new projects. On the investment side, the report notes that capital continues to be drawn to the asset class, citing durable income streams and improving appreciation prospects. The authors conclude that healthcare's status as a necessary expenditure helps support steady utilization and reinforces the sector's resilience across economic cycles.
