How Certificate of Need (CON) Laws Impact Medical Real Estate Valuations

Medical real estate isn’t just shaped by market demand and tenant mix—it’s also heavily influenced by regulatory hurdles, and few regulations have a bigger impact than Certificate of Need (CON) laws. These state-level regulations determine whether a healthcare provider can open, expand, or relocate certain facilities, and they have a direct effect on property valuations.

For those unfamiliar, CON laws were originally designed to prevent oversaturation of healthcare facilities and to ensure equitable access to care. In states with strict CON requirements, a provider can’t just set up a new surgery center or imaging facility because they see an opportunity. They must first prove to the state that there’s a need for that service in the area. This creates both limitations and opportunities in medical real estate.

From an appraisal standpoint, CON laws can act as a value booster. If a healthcare provider secures a CON to operate a specific type of facility in a high-demand area, that property gains a competitive advantage. Because not just anyone can open a competing facility nearby, the existing property holds a protected market position, making it more attractive to investors.

On the flip side, CON laws can also stifle competition and slow market growth. In states with strict regulations, the approval process can be lengthy and unpredictable. This means healthcare real estate projects can get stuck in limbo, and properties that might otherwise be in high demand can struggle with uncertainty. A hospital or specialty clinic planning to expand into a new market might face years of legal and bureaucratic delays before they can even break ground.

Another key factor is tenant stability. A healthcare provider operating in a CON-restricted area is less likely to relocate, since obtaining approval elsewhere would be a major hurdle. This often translates to longer lease agreements and lower vacancy risk—a big plus for property owners and investors.

However, in states that have repealed or relaxed CON laws, we’re seeing increased competition, which can shift property values in both directions. More providers entering the market can drive higher demand for medical real estate, but it can also lead to market saturation, making location and facility specialization more important than ever.

For appraisers, understanding CON laws is essential to accurately valuing medical real estate. Does the property hold a protected market position? Does the tenant’s business model rely on CON approval? Could regulatory changes impact future demand? These questions all factor into the appraisal process.

At the end of the day, Certificate of Need laws add a unique layer to medical real estate valuations, creating opportunities for some properties while restricting growth for others.

If you’re buying, selling, or appraising medical real estate in a CON-regulated state, let’s connect. I’ll help ensure your valuation reflects the full impact of these regulations.