Does your real estate support the growth plans of your private practice?

Matt Coursen: ©JLL

Provider practices are facing challenges brought on by shifting patient demographics, a need for effective succession planning and volatile real estate dynamics. Savvy practices are evaluating if their current location allows them to serve the needs of today’s patients, manage through physician retirements and continue to grow. But their strategic growth is often stymied by lack of data, high construction costs, financing barriers and stiff competition for medical office space.

The answer? A sound real estate strategy backed by the right economic and patient data is a powerful tool for future-proofing your practice.

The MOB: Still the right place for you?

Long considered the standard for physician office space, medical outpatient buildings (“MOB”) are now more expensive, harder to come by, and often poorly suited to changing operational needs.

These shifts are apparent when examining the leasing trends. In 2024, health systems accounted for 46% of the 2.9 million square feet of medical outpatient space leased, according to JLL. Specialty providers made up another 31%, with behavioral health, particularly psychiatrists, driving 18% of that demand. As competition for space has intensified, and practices with strong credit have gobbled up the nicer, newer and more efficient MOB space, independent physicians have been left with fewer quality buildings and thus have incurred higher fit-out costs to build out space in older, less efficient buildings.

For those who own or manage their practices, simply renewing a lease won’t cut it. With demand rising and inventory shrinking, today’s practice owners must be strategic and ask the question: Is this still the right place for our current patients and our future patients?

The race for space

Unlike the broader office real estate market, which has seen a dip in demand and a rise in tenant improvement allowances and free rent from landlords, the medical office sector remains strong. One of the reasons for its strength is due to the increased demand for health care services. Outpatient volume in the U.S. is anticipated to grow approximately 10.6%, while inpatient volumes are expected to increase only 0.9% over the next five years, according to Advisory Board. An aging population and increasing disease prevalence continues to drive the overall need for care in a lower cost environment that is off-campus and convenient for patients.

Rents in the medical outpatient sector have not shifted in favor of the tenant, as MOB availability remains limited. JLL research indicates that construction of MOBs remains subdued. This is due to developers needing higher returns on cost as they face an increased inflationary environment and capital market volatility.

At the same time, tenants are struggling to control rental expenses. Elevated construction costs are a factor, often ranging from $300 to $600 per square foot, depending on the region and level of build-out required. Therefore, expensive renovations are needed to meet modern health care delivery standards.

Added to those challenges is that financing is harder to secure—especially for smaller practices. At the same time, larger players like hospital systems and specialty groups are dominating medical leases, leaving limited space for independent physicians.

Last year, only about 6% of medical office leases were signed by private practices. While some of that reflects long-term tenant stability, it also shows ongoing consolidation, with more physicians joining hospital systems or private equity-backed groups.

Still, a quiet countertrend is emerging, which is that some physicians are seeking a return to independence. Burnout, loss of autonomy and administrative burdens are prompting some to buy back their practices. While this shift has not yet dramatically impacted real estate, it could drive more independent leasing and buying in the future.

The real estate impact of practice transitions

Physicians today are making decisions not just about how they operate, but also where they operate. Shifts in ownership structures—driven by succession planning, leadership changes, and the natural evolution of a practice—are bringing real estate decisions to the forefront. As trends toward physician independence reemerge, questions about whether to stay, expand or relocate are becoming more important.

This decision carries a lot of weight. Practices that remain in place often assume the space will continue to serve their needs; however patient populations shift over time. For example, areas that once had dense patient clusters may see migration, aging demographics, or economic shifts that alter the practice’s catchment area. Despite this, many practices never reassess their location’s relevance.

For practices that are facing generational transitions, the question becomes even more important. Incoming partners may not want to inherit outdated facilities, especially if part of the practice group is preparing to retire. In one case, a large internal medicine practice in Rockville, Maryland, with 60 specialty and primary care doctors explored expanding and opening another practice in a new market.

After using a location analytics platform to assess patient origin, competition, and construction feasibility, they decided against it. The area lacked sufficient demand, and the capital investment couldn’t be justified, particularly given the retiring partner base. Their strategic analysis prevented what could have become a very costly mistake.

Buy versus lease

These types of decisions—where to stay, expand, or exit—are also tied to another important consideration, which is whether to buy or lease the space they practice in. Many private practices operate under the assumption that leasing medical space requires affiliation with a hospital or managed services organization, which is not always the case. There are creative leasing and ownership structures available to independent practices such as credit tenant leases, synthetic leases, and sale-leasebacks, which can offer more flexibility and control than traditional arrangements.

The problem, though, is that often it is not just about the lease structure. It is about the scarcity of space. Finding the right facility in the right location is becoming more difficult, particularly for small-to-mid-sized practices, which is why some are looking beyond traditional MOBs and are exploring non-traditional spaces such as former retail locations, both big box and inline. Others are pursuing custom leasebacks that offer both operational suitability and financial sense. It is essential to first have awareness of all the options, and to then evaluate them against the long-term goals of the practice.

Real estate strategy, succession and tech’s increasing role

Succession planning and real estate strategy are very much intertwined. Whether a practice is preparing to transition its leadership or is thinking ahead to eventual retirement of some of the more senior physicians, the physical space must support that next phase. Is it the right size? Will it need upgrades to remain competitive? Can it accommodate new services or a shift in care delivery models? Those are all questions that should be analyzed both from a financial as well as operational standpoint.

Real estate isn’t just about square footage. It is about optimizing care delivery and positioning the practice for stability. Data is also important to that equation because it makes practices better equipped to make long-term decisions.

That is where technology really enters the conversation—not as a replacement for strategic thinking, but as a tool that can help inform it. Practice owners may not think of real estate as a tech issue, but data analytics tools, such as GIS mapping software, can play a major role in guiding better decisions. These types of tools layer patient demographics, competitor locations, claims data, patient volumes projections and referral patterns to help practices evaluate where to open a new office, whether to stay put, or how to reconfigure their existing footprint.

Mapping and financial modeling can show, for example, that expansion is not feasible and doesn’t make sense. In other cases, though, those tools have helped practices identify untapped markets, reduce overhead by relocating or confirm that their current location remains optimal.

Planning for tomorrow

The primary care physician of today is no longer just a caregiver. They are business owners, planners and community leaders, and real estate decisions touch every part of their success. From patient access and retention to operational efficiency and financial sustainability, growth-minded practices that take a more informed approach to their space decisions and plan for the change, instead of reacting to it, will be the ones who thrive.

Matt Coursen is the U.S. Healthcare Lead for the Leasing Advisory services platform at JLL, a global commercial real estate services and technology company. He leads a team of hundreds of health care specialists across the United States who represent owners and investors of medical properties, as well as occupiers of that asset class including hospitals, health systems and high-growth health networks.