Sometimes you have to mine a lot of rocks before you find a sparkly diamond. In a manner of speaking, the same goes for finding medical spaces throughout Arizona. As Arizona’s population increases, demand for outpatient healthcare facilities rises. But finding financially viable, optimal locations continues to prove challenging.
Could vacant office buildings be hidden gems to help meet demand for healthcare facilities, while also lowering construction costs?
MORE NEWS: The office trends that are redefining the Phoenix market
Commercial real estate investment, development and property management firms are working with healthcare organizations to explore whether office building conversion into medical use space could be part of answering this question.
How much demand is there for healthcare space?
The medical-office construction pipeline reached 436,396 square feet in Q2 2026. According to Colliers, that’s a 67% year-over-year increase, even despite economic pressures preventing development.
According to Kidder Mathews, Phoenix office-to-medical conversions remained part of certain Phoenix submarkets, contributing to the Valley’s estimated 17.3 million square feet of medical office inventory.
JLL recently reported that nationally, outpatient volumes are projected to grow 7.8% over the next five years. Combined with limited new construction, that growth is increasing providers to consider existing space and adaptive reuse.
Are office vacancies driving more medical conversions?
The short answer is not as much as you might think.
A shift toward hybrid and remote work contributed to rising office vacancies in the years following the pandemic, but recently the Phoenix office market has shown signs of recovery. The office vacancy rate fell at the fastest pace in more than a decade during the second quarter of 2026, declining 70 basis points (bps) quarter over quarter to 25.4%, according to Cushman & Wakefield.
The science of office-to-healthcare building transformation is tricky. Not every vacant office is a candidate for retrofit for a myriad of reasons. There are multiple variables that providers and project managers take into consideration.
Whether the office market is trending higher vacancies or lower, isn’t the major factor in office-to-medical space transformations.
What makes an office building an optimal conversion candidate?
Location, accessibility for patient accessibility, proximity to high-traffic areas, building infrastructure and regulatory compliance and zoning are among primary factors healthcare organizations and brokers consider when evaluating a new space.
“Healthcare providers like the checklist of retail centers, high visibility, signage and a lot of parking,” says Julie A. Johnson, executive vice president for Colliers Arizona Healthcare Team.
The National Academies of Sciences, Engineering, and Medicine referenced a study of 50 medical offices by ITE Journal that found the basis for the most desirable healthcare space parking is 4.5 spaces per 1,000 gross square feet.
But parking availability is only one piece of a much bigger puzzle.
“A health system needs a balanced mix of property types,” says Peter Gray, vice president of facilities management and real estate for HonorHealth. “In some cases, an existing building in a mature market can offer advantages such as established infrastructure, covered parking, larger floor plates, and the ability to bring multiple services together under one roof.”
Gray adds, “When those factors align with our clinical needs, it can be an effective way to expand access and improve the patient experience.”
Operation location
Proximity to a hospital can also be valuable without a property necessarily being part of the hospital campus. Alex Hondros, senior vice president of acquisition and asset management for ViaWest Group, says off-campus locations can provide greater leasing flexibility, allowing a building near one health system’s hospital to potentially lease space to providers affiliated with another.
“The flexibility of being off campus allows us to do that,” he says.
There are more non-negotiables that healthcare providers and developers prioritize when assessing office-building conversion candidates.
“Certain medical users that have heavy equipment typically need ground-floor space such as a surgery center or radiology center,” Johnson explains.
Hondros points to MRI equipment as an example. Placing an MRI on an upper floor is possible, he says, but the equipment’s weight and structural requirements can make doing so significantly more expensive.
Outpatient healthcare requirements can pose significant roadblocks when converting a traditional office building. A building’s electrical, HVAC, structural capacity and water systems are all factors to consider in these types of transformations.
Mari Lederman, executive vice president and co-leader of JLL’s Healthcare Solutions Group in Phoenix, brings up a valuable point about office-to-healthcare conversions. “The question we are really answering for a client is never just, ‘Can this become medical?’ It is, ‘Which medical uses can this building support economically?’”
A property can be a great fit for general physician practices and still be a poor fit for an ambulatory surgery center, imaging center, or dialysis use. Knowing that distinction early will save time and money.
What makes office-to-medical conversions challenging
Lederman says some conversions may need an upgrade for many — if not all — existing building components: Power, HVAC, plumbing, structural capacity, ceiling heights, parking and life safety systems.
It’s unlikely, if not nearly impossible, to find a turnkey office ready for medical-use transformation.
“The challenge is finding alignment between the building and the healthcare services being planned,” Gray says.
Healthcare uses such as pharmacies, labs, imaging, and procedural areas, as Gray notes, often require more infrastructure than a traditional office building was designed to support. “The ideal combination of location, space, infrastructure, and clinical functionality is actually relatively rare.”
The greater the need for upgrades and retrofitting, the higher costs rise.
“The existing column spacing, floor plates and elevator and stair locations can limit how clean the clinical layout [of a space] ends up being,” Lederman says. “Those conditions are where the unexpected conversion costs show up and where certain higher acuity uses get ruled out entirely.”
Case study: Chandler Integrated Care Campus
The needs and challenges of converting an office into an outpatient healthcare space. So is the scarcity of available real estate to accommodate large medical users. But as we’ve pointed out, amid all the rocks, you can often find a diamond in the rough and that’s what happened with the Chandler Integrated Care Campus.
The story begins with ViaWest identifying a strong demand for large medical space in Chandler.
“When we went out and looked at the Chandler market, we only found one space over 5,000 square feet available in all of Chandler for medical,” Hondros says.
Originally developed as the Countrywide Financial headquarters, the property was designed with a central plant that Hondros says provides greater water, HVAC and electrical capacity than ViaWest expects to need for medical use.
“Electrical capacity is pretty important, especially as you get into some of these more specialized uses,” Hondros says.
It was around Thanksgiving 2024 that the owner of the Frye Road office building contacted ViaWest with a proposition: If ViaWest could close by the end of the year, the owner would sell them the building.
As it happens, HonorHealth was looking for a large block of space in Chandler and was having difficulty finding it.
ViaWest moved quickly and bought the property in December for $15 million. ViaWest’s own current project page confirms the December 2024 acquisition, $15 million purchase price and planned $24 million redevelopment.
“The Chandler campus was a rare opportunity. It combined a premier East Valley location with infrastructure, parking, and building systems that are difficult to replicate in a new development,” Gray says. “Just as importantly, it gives us the ability to bring more services together in one place, improving access, coordination, and convenience for our patients in the Southeast Valley.”
It was then that ViaWest took a leap and bought the building, despite HonorHealth not having signed on the dotted line, and without all the entitlements in place — all on an extremely tight closing timeline.
More proof of concept
Chandler isn’t the Valley’s only traditional office property finding new life as a medical space.
The former Stapley Corporate Center in Mesa, for example, was acquired by a joint venture of Cypress Office Properties and Harbert Management Corp. for $37 million in 2021. The goal: Reposition the property for medical office use. Now known as Stapley Medical Center, the two-building campus was sold to RX Health & Science Trust for $48 million in the second quarter of 2026.
Before Chandler, ViaWest had already experienced an office-to-medical conversion at Blackhawk Corporate Center in Deer Valley, a project Hondros describes as perhaps “an accidental proof of concept.
“We came into [it] as a traditional office, and then saw medical demand, leased a bunch of space to medical users and then sold it,” he says.
ViaWest sold the 252,350-square-foot campus in Deer Valley in 2023. At the time it was 96% leased to a combination of traditional office and high-acuity medical users. AZ Big Media reported that the property had previously housed a Cox Communications call center before its medical conversion.
Comparing office retrofits with new healthcare builds
The experts have pointed out that retrofitting offices to medical spaces can be costly depending on the breadth of upgrades and infrastructure alterations.
Is converting offices into healthcare facilities worth the time and effort? Like many other commercial real estate projects, the answer depends.
As for timing, Hondros explains that a tenant in an existing building could potentially reach occupancy in roughly six to nine months. Alternatively, a new build could take two to three years.
Then there are new build vs. conversion costs to compare.
Johnson says new construction costs have increased in recent years, requiring higher lease rates to support new development.
“There’s some significant capital, and so buying the buildings cheap enough is also pretty important,” Hondros says.
Knowing a property’s limitations up front matters because it directly affects the tenant pool a building can attract, the tenant improvement dollars needed to get a deal done, and, ultimately, the rent the space can support, Lederman explains.
“Ultimately, what rent the space can support,” she says, “This is the piece that shapes the underwriting on these deals.”
Lederman adds, “With ground-up construction, healthcare organizations can design infrastructure, patient flow, equipment access and future expansion into the building from the beginning.”
A conversion, by contrast, requires working within the limitations of what is already there.
Will more Arizona offices become healthcare facilities?
Johnson says that the high-growth areas of the West Valley, North Valley and Southeast Valley are all areas where practices are looking to grow and add additional practice locations with satellite offices.
“I think there will be more office-to-medical conversions when the opportunity arises of a high vacancy,” she adds.
The shift toward existing buildings could continue as construction has slowed nationally. New medical outpatient building starts are at near historic lows, representing just 1% of existing inventory, according to JLL’s 2026 Medical Outpatient Building Fit-Out Cost Guide. With most new projects already pre-leased, healthcare providers are increasingly looking to renovations and adaptive reuse.
On the flip side, Hondros cautions that many large office buildings don’t make sense for medical use owners. There simply may not be enough healthcare demand to fill them. As noted earlier, location, parking, infrastructure, acquisition cost and the types of medical users a building can accommodate all have to align.
For Arizona’s healthcare providers and commercial real estate industry, the search will continue. There may be plenty of rocks to sort through, but when the right office property meets the right healthcare demand, there could still be a diamond hiding among them.
