Outpatient Demand and Aging Demographics Fuel Medical Office Competition
Los Angeles ranked second nationally for healthcare leasing activity in the second quarter, trailing only Houston, according to Avison Young. The metro area, including Orange County, California, recorded 331,000 square feet of medical office leasing in the quarter and more than 1.5 million square feet over the past 12 months. Los Angeles led all markets in healthcare sales activity during the quarter with $285 million in transaction volume.
The metro’s aging population and concentration of major health systems—including Cedars-Sinai, UCLA Health, Providence, and Kaiser Permanente—drove the activity. Avison Young principal Michael Dettling said providers are leasing existing space rather than pursuing new development due to elevated construction costs and higher interest rates in recent years. Medical office inventory in the metro totals nearly 61 million square feet, with occupancy at roughly 93 percent and only 1.2 million square feet in the pipeline. The tight supply has pushed rental rates higher.
Developers are increasingly converting older office and retail properties into medical space rather than building from the ground up. Class A medical offices remain in high demand from large health systems, while independent physicians and dentists are absorbing Class B and C space. Outpatient services continue to expand as Medicare and Medicaid reimbursement policies allow more procedures—including knee and hip replacements—to be performed outside hospital settings.
Jay Johnson, executive managing director for Avison Young’s national healthcare sector, said the trend mirrors national patterns as the population ages and health systems invest in outpatient networks. Los Angeles, as the second-largest U.S. metro, commands a significant share of healthcare real estate activity. Dettling expects demand for outpatient space to remain strong, limited only by available inventory.
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