Higher Interest Rates Are Redrawing the Map for Medical Real Estate

For years, cheap money fueled medical real estate growth. Developers could borrow at historically low rates, systems could expand faster, and investors could price in aggressive rent escalations. That chapter is over. Higher interest rates have rewritten the math, forcing every player—from REITs to local developers—to rethink how deals get done and where capital flows next.

The immediate effect is visible in deal volume. Transaction velocity has slowed, but pricing on quality assets has held stronger than expected. Medical office, outpatient, and behavioral health facilities with creditworthy tenants are still attracting bids because they offer reliable income in a volatile market. The spread between top-tier assets and everything else, however, is widening. A few basis points of rate difference can erase thin margins, and investors are acting accordingly.

Developers are responding by leaning on joint ventures, seller financing, and creative capital stacking to keep projects moving. Build-to-suit models are gaining popularity again, especially for healthcare operators that want control over design without tying up large amounts of equity. Some systems are even stepping in as partial owners to make projects pencil. The structure of capital is getting more flexible, but also more complex.

On the valuation side, underwriters are scrutinizing everything—tenant credit, lease term, escalation structure, and reimbursement exposure. Cap rates have adjusted upward in most markets, yet the best assets are still trading with strong competition because capital chasing stability always finds its way to healthcare.

The key is focus. Those who understand how to model financing accurately, negotiate flexibility into terms, and partner with operators that can weather rate pressure are still closing deals. The environment may be tighter, but opportunity has not left the table—it just requires sharper execution and better intelligence.

📅 Book a call: https://calendly.com/contact-loveladyperspective/15min

📬 Subscribe for weekly insights: https://www.loveladyperspective.com/contact