Vital Signs: 2025 Healthcare Update

Construction Costs Moderate However, costs remain elevated when compared to pre pandemic levels.

MOB LEASING

• A hurdle to construction is the increased cost of building. Driven by strong demand and inflationary pressures, construction costs rose significantly between 2021 and 2023. • While prices have slowed compared to a few years ago, they remain significantly higher than pre-pandemic levels. As of October 2024, the cost to build healthcare buildings rose just 0.1% YOY, but costs were up 34% compared to January 2020. levels. Total nonresidential construction outpaced healthcare costs, up 1.3% YOY and up 38% when compared to January 2020. • Planning construction projects in a high-inflation, high interest-rate environment has been challenging. With inflation closer to the Fed’s target and interest rates beginning to ease, more developers expect increased activity in 2025. However, potentially higher commodity and labor costs may dampen some activity. • Conversions are another option for healthcare construction. The repositioning of office assets has accelerated in recent years, with partial or full conversions of office space to MOBs becoming more common. This trend may accelerate in 2025 as more office assets may face distress; however, the cost to convert will require tactical planning to meet strategic goals.

180

170

160

150

Up 34%

140

130

120

New Construction PPI (Index NSA)

110

100

Jan-17

Jan-21

Jan-18

Jan-16

Jan-19

Sep-17

Sep-21

Sep-18

Sep-16

Sep-19

Jan-22

Jan-23

May-17

May-21

Jan-24

May-18

May-16

May-19

Jan-20

Sep-22

Sep-23

Sep-24

Sep-20

May-22

May-23

May-24

May-20

Health Care

Nonresidential

Source: U.S. Bureau of Labor Statistics (BLS)

11