The Impact of Rising Interest Rates on Medical Real Estate Investments

The healthcare real estate sector has long been viewed as a stable, recession-resistant asset class, but rising interest rates are forcing investors, lenders, and healthcare providers to rethink their strategies. With higher borrowing costs, shifting cap rates, and increased tenant scrutiny, the medical real estate landscape is evolving fast.

One of the most immediate effects of rising interest rates is higher financing costs for property acquisitions and development. Investors who once relied on cheap debt to fund medical office buildings, ambulatory surgery centers, or behavioral health facilities are now facing more expensive loans and tighter lending requirements. This has led to a slowdown in transaction volume, with many investors waiting for either rates to stabilize or pricing to adjust.

At the same time, cap rates are rising as buyers demand higher returns to compensate for the increased cost of capital. Medical real estate, which has historically traded at lower cap rates due to strong tenant stability, is now seeing valuation adjustments in some markets. However, long-term leases with creditworthy healthcare tenants continue to provide a hedge against volatility, making medical real estate more resilient than traditional office space.

For healthcare operators, rising interest rates mean higher costs for expansion and development projects. Many health systems and private equity-backed providers are now shifting focus to leasing instead of owning real estate, creating more demand for investor-owned medical properties. However, landlords must be strategic with lease structuring, as tenants may seek more flexible terms to navigate the uncertain financial climate.

Despite these challenges, medical real estate remains a strong asset class. The demand for healthcare services continues to grow, especially in behavioral health, outpatient care, and senior living, meaning well-located, patient-friendly facilities will still attract tenants and investors willing to adapt to new financing realities.

As interest rates fluctuate, understanding their impact on valuations, lease negotiations, and investment strategy will be critical for both property owners and healthcare operators.

If you’re evaluating a medical real estate investment or need an appraisal in this changing market, let’s connect. You can book a quick call with me here: https://calendly.com/contact-loveladyperspective.

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