Daily Top 5
Medical Office Construction Starts Fall to Lowest Level in at Least a Decade
Article originally posted in the Globe St on Nov. 4, 2026.
Medical office tenants are taking space at the fastest pace in nearly five years, and almost nothing new is being built to replace it. That combination points to a long period of tight supply that should favor owners of existing healthcare buildings. Avison Young’s latest U.S. healthcare market trends report shows that investors have not fully caught up. The firm describes a “growing disconnect between strengthening fundamentals and slowing transaction activity.”
Construction Falls to a 10-Year Low
The biggest change is in the development pipeline. Third-quarter construction starts fell to 987,000 square feet, down 54% from the prior quarter and 64% from a year earlier. That is the lowest level of starts in at least 10 years.
The number of new projects fell 45% from the previous quarter and 56% from a year ago. With fewer projects coming in behind the ones now finishing, Avison Young expects a “prolonged period of supply restraint, limiting growth, which will help support existing asset performance.”
Demand Keeps Outpacing Deliveries
While supply is shrinking, demand is rising. Net absorption jumped 61% from the second quarter to 4.1 million square feet, its highest level since the fourth quarter of 2021. This was the fourth quarter in a row that demand exceeded new deliveries.
Availability fell to 7.8% even as inventory grew, and available space dropped 3.0% from a year earlier. Occupancy rose 32 basis points year over year.
The demand is not coming from a broad wave of new leases. Leasing volume fell to a five-year low. Avison Young says the absorption gains came from a mix of pre-leased deliveries, tenant expansions and fewer move-outs. Most leasing activity was concentrated in the largest metros. New York City led with 2.7 million square feet, followed by Houston at 1.7 million, Los Angeles and Miami at 1.4 million each, Washington, D.C., and Dallas at 1.2 million each, Chicago and Atlanta at 1.1 million each, Phoenix at 1.0 million and Baltimore at 0.8 million.
Rents Rise Below the Top Tier
Tight conditions are pushing rents up. NNN rents rose 2.8% year over year. Median medical office rents climbed to $25.50 per square foot, while rents at the 90th percentile held at $42.00.
Avison Young sees opportunity in that gap. “For occupiers, well-located mid-tier assets may offer relative value. For owners, improving median rents enhance the income growth potential of properties below the market’s highest-priced tier,” the firm wrote.
Sales Slow After a Strong Year
The transaction numbers are less clear. Trailing 12-month sales volume reached $12.7 billion, nearly twice the prior-year period. Most of that came from strong activity in late 2025, when buyers and sellers moved closer on price and several large portfolio deals raised total dollar volume more than they raised the number of deals.
The third quarter alone was weaker. Volume fell 22% to $1.6 billion, and the deal count dropped 23% to 104 transactions. Average cap rates were about 7.12%. Higher Treasury yields raised borrowing costs, and the remaining gap between what buyers will pay and what sellers will accept held back activity. Capital is still available, but buyers are choosier about where they put it.