In a year marked by economic uncertainty and continued market recalibration, healthcare real estate activity in 2025 told a story of strategic patience and measured growth. At Davis, we completed 47 transactions representing 1.4 million square feet and $392 million in total value—numbers that reflect both the resilience of healthcare real estate demand and the evolving priorities of providers navigating a complex landscape.
The composition of our 2025 activity reveals important insights about how healthcare organizations approached real estate decisions last year. While leasing remained the dominant transaction type—accounting for 41 of our 47 deals—we also facilitated 6 strategic investment sales and refinancing transactions. This heavy leasing emphasis mirrors what we’ve observed in recent years: providers continuing to prioritize operational flexibility and capital preservation over ownership, particularly as interest rates and construction costs remain elevated.
The broader market context helps explain the dynamics we observed throughout the year. Medical buildings nationwide are hovering around 93% occupancy, a trend that holds true in our local market as well. Much of the vacancy that does exist is concentrated in obsolete buildings or submarkets that don’t align with provider growth strategies. Meanwhile, new development has slowed dramatically. The economics simply aren’t working: high construction and financing costs require rental rates that most tenants aren’t comfortable absorbing, effectively freezing new supply even as demand remains strong.
Transaction Activity
In this supply-constrained environment, the shift toward renewals became the defining trend of 2025. With renewals outnumbering new leases 24 to 17, healthcare organizations increasingly opted to stay put. For many groups, renewing and potentially right-sizing their current space made more strategic and economic sense than competing for limited quality options or taking on the substantial expense and disruption of a move.
New vs Renewal Comparison
The data becomes even more revealing when we look at the size and commitment levels of these transactions. New leases averaged 5,676 square feet with lease terms averaging 112 months—nearly ten years. Renewals, by contrast, averaged 11,682 square feet but with significantly shorter terms of just 71 months, or just under six years.
This size-to-term dynamic tells an important story. Smaller new leases with longer terms suggest that groups entering new locations are making substantial commitments to justify the significant tenant improvement costs required—often $160+ per square foot for clinic space and considerably more for specialty or surgical facilities. They’re locking in long-term positions to amortize these investments and establish a sustained presence. The smaller average size is likely also correlated with the lack of large blocks of available space.
Meanwhile, larger established practices renewing their leases are negotiating shorter terms, retaining flexibility for future strategic decisions. Whether driven by uncertainty about market conditions, anticipated changes in care delivery models, or simply a desire to reassess their real estate footprint in a few years rather than a decade, these renewal terms reflect a more cautious, wait-and-see approach from practices that might otherwise have committed longer.
Interestingly, many groups with leases expiring in 2026 or early 2027 chose to renew early in 2025. This wasn’t coincidental—it was strategic. These organizations saw the market trajectory and locked in rates ahead of the rental increases that now appear inevitable as occupancy continues to climb.
Looking Ahead to 2026
The dynamics that shaped 2025 aren’t going away—if anything, they’re intensifying. Our current pipeline is strong, and we’re already hearing about larger space requirements in the market that are struggling to find suitable options.
We expect to see a continued focus on optimization over expansion. With the dual pressures of high labor costs and rising occupancy expenses, and with payor reimbursement rates remaining essentially flat, healthcare organizations will be forced to maximize the productivity of their existing footprint. The question is shifting from “where should we expand?” to “how do we generate more revenue per square foot in the space we already have?”
For now, though, 2026 looks to be a year of strategic constraint. Groups will stay disciplined, landlords will hold firm on rates in a supply-starved market, and the few quality spaces that do become available will command a premium.
