Traditional office is still sorting itself out. Hybrid work, downsizing, and subleases (though fewer than a year ago) are everywhere… and everyone has a different anecdote to share.

But medical office? It’s been doing great.

Vacancy is low. Rents are rising. Tenants are sticking around. CoStar posted the article below, and it confirms what we’re seeing here in Phoenix. CoStar also reports that Phoenix medical office properties had a 12.6% vacancy rate in Q1 2025 — far outperforming the 17.5% vacancy rate in traditional office space during the same period. That gap shows just how sharply medical office has pulled ahead in this market. (CoStar Insight – June 2025)

Below are my takeaways as to why:

— Healthcare jobs are still growing: While office jobs have basically flatlined, people still need care— that’s not changing.

— Medical tenants are in the office: While some care has gone virtual, healthcare inherently is collaborative and face-to-face, requiring physical space.

— Very little new supply: These buildings are extremely expensive to build. The ones that do usually get leased before they’re even finished.

Bottom line: this is one of the most stable spots in the entire office market. And here in Metro Phoenix, we’re seeing strong tenant demand across the board.

If you’re interested in healthcare real estate — or want to be — let’s talk.

Medical office buildings have demonstrated stable performance for the past few years, presenting a marked contrast with traditional offices.

The subsector enjoys several structural advantages that are likely to persist despite short-term economic headwinds.

Medical offices have long outperformed traditional ones in occupancy, and the gap has widened dramatically in the past five years.

Check out CoStar’s newly released quarterly report on the U.S. medical office market

The current medical office vacancy rate is only about 50 basis points higher than it was entering 2020 and is well below its historical peak. Traditional office vacancy, on the other hand, has surged by 500 basis points and is only now stabilizing around its record high.

Rent growth has also outpaced that of traditional offices since 2020 and recently exceeded that of other commercial property types.

A few sector-specific factors undergird this outperformance, the first of which is steady demand. Ambulatory healthcare job growth, a key driver of space demand, has held steady near 4% over the past two years. During this time, job growth in the traditional office-using industries has plummeted to around 0.5%, while overall job growth has drifted downward from about 2% to just over 1%.

While demographic shifts are set to slow job growth generally for the remainder of the decade and beyond, an aging, active population of healthcare consumers should provide the medical office sector with more resilience than others.

A second strength of medical office buildings is the relative stickiness of tenants. At a basic level, the necessity of physical presence for most diagnosis and treatment means that healthcare providers require space that is convenient for their patients. Once they have established familiar locations, they are reluctant to leave.

Furthermore, medical office buildouts tend to be expensive, and relocating specialized equipment can be very costly. Thus, leases for medical office space tend to be longer than those of traditional offices.

Disciplined supply growth is a third factor supporting medical office performance. Healthcare practice groups tend to prefer specific locations, either near acute-care facilities or in amenity-rich, consumer-accessible areas. This constrains the number of sites suitable for medical office development, and, as a result, a relatively high share of these buildings are preleased or built to suit.

While the current degree of economic uncertainty presents a short-term risk to all commercial real estate, including medical office buildings, the long-term drivers remain in place to support continued strong performance at medical office buildings, especially in high-growth metros.

We welcome your feedback. Please send questions or comments on the new report to CoStar National Director of Office Analytics Phil Mobley.