Rising Construction Costs Are Reshaping Healthcare Real Estate Strategy

Ask any developer, lender, or broker in the healthcare real estate space what keeps them up at night, and you will hear the same answer—construction costs. They have not gone down, and they are unlikely to in the near term. Labor shortages, supply chain volatility, and higher financing expenses have made new builds harder to pencil out, pushing many groups to rethink how and where they deploy capital.

Operators are becoming more selective with projects, focusing on facilities that drive measurable revenue growth rather than just expansion for the sake of footprint. Many health systems are turning to adaptive reuse, converting retail boxes or underperforming offices into outpatient clinics and specialty centers. Even smaller operators are exploring build-to-suit partnerships to offset upfront costs and lock in predictable lease structures.

Investors are adjusting too. Construction risk is being priced into deals more carefully, and forward yields are being reassessed based on realistic delivery timelines rather than optimistic ones. In several markets, we are already seeing investors favor stabilized assets with room for operational improvement over speculative new development. That trend will likely continue into 2026.

The takeaway is not that development is slowing—it is getting smarter. The winners will be the groups who understand how to balance cost, timing, and long-term positioning. Those who can identify conversion opportunities and partner with operators early in the planning stage are already finding creative ways to make the numbers work.

Healthcare real estate remains a resilient sector, but it is moving into a more disciplined phase. The opportunities are still there—they just require sharper pencils and smarter collaboration.

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