Arizona’s rapid population growth is reshaping the healthcare real estate market, bringing both opportunity and strain. As new communities take root across the Valley, providers and developers are being asked to deliver care in ways that are more convenient, cost-effective and patient-centered.

Two themes dominate the conversation in 2025: the shift toward outpatient and community-based care, and the mounting financial and logistical hurdles that come with developing new facilities.  

For professionals in the field, each new deal carries both excitement and caution. Expanding access to healthcare outside of the traditional hospital setting is seen as essential for meeting patient needs, yet construction delays, cost overruns and financing challenges often stand in the way.

Perry Gabuzzi, senior vice president with Kidder Mathews, says, “New home developments means medical office is stretching out to accommodate those communities. And I think we’ll continue to see that.”  

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A shift in care 

Comfort and affordability are the new goals of Valley healthcare providers. For decades doctors’ offices, surgery centers and hospitals were all synonymous. This environment is not only more difficult for patients to rest and recover in but also limited space and mobility.

Today, healthcare providers are meeting their patients’ needs by building spaces outside of the traditional hospital setting to ensure more personalized, community-based care.

“Patients don’t really love to go to a hospital campus for everyday patient care,” Gabuzzi says. “If you’re just walking around and you’ve got a regular checkup, you want to do that in a location that’s closest to home and easy to park at. That’s why we’ve seen a push to more care in the outpatient settings.”

Expanding surgery centers outside of the hospital structure is beneficial for patients but also an economic boost to the communities they care for. New homes filled with new residents lead to new doctors’ offices, and in turn new investments.

“That trend started about 10 years ago,” explains Philip Wurth, senior vice president at CBRE, specializing in healthcare and life sciences properties. “Banner was the very first hospital system to do their regional clinics, where they were bringing the medical services to the patients. Everyone else has jumped on board, including private physicians. And then with recent policy changes continuing to incentivize outpatient services, you’re seeing more demand for those ambulatory surgical centers outside of hospital campuses.”

Experts say ambulatory surgery centers (ASCs) are one of the most significant growth areas in healthcare real estate. Once considered a niche option, ASCs allow providers to perform procedures in specialized, outpatient-focused environments that are designed to be easier to access and less costly to build than full-scale hospitals. 

Vince Femiano, managing director of Transwestern’s healthcare advisory team, says, “ASCs are back. Physicians are starting to team up with private equity, and there’s a new infusion of funds in the marketplace, so specialty doctors are starting to get more bullish and looking to open their own ASCs in connection with large groups.” 

 Part of this healthcare real estate market momentum is being fueled by private equity groups, which see ASCs as an attractive investment opportunity. By teaming up with specialty physicians and established operators, such as national surgery center networks, these investors are injecting the capital needed to expand rapidly across high-growth markets. 

The combination of physician expertise and investor backing is creating an ecosystem where ASCs can thrive, offering patients a streamlined experience while generating strong returns for stakeholders.  

For patients, the benefits are equally clear. The traditional hospital remains the most expensive site of care, in terms of both operating costs and patient expense. On the other hand, ASCs provide a lower-cost alternative that doesn’t sacrifice quality. This model not only improves affordability but also aligns with shifting consumer expectations for more convenient, patient-centered healthcare.

“The highest cost to deliver healthcare is in the hospital,” says Julie Johnson, an executive vice president with Colliers. “People are trying to keep patients out of the hospital and care for them in lower-cost settings such as ambulatory surgery centers. As more and more surgeries can be done outpatient, it’s less costly, and the patient gets to go home at night and doesn’t have to be in a hospital, which might not be as comfortable.”   

Rising costs

While the goal of a more convenient and economical healthcare system is honorable, the logistics of establishing new systems in new settings comes with their own hurdles.

In any facet of real estate in 2025, the greatest obstacle developers and brokers must tackle is the rising cost of materials coupled with a continuing shortage in skilled construction professionals. Contractors report material costs climbing by as much as 80% on essentials like fuel, asphalt and steel, while labor expenses have risen over 20% in just two years, forcing projects to be booked further in advance and often delayed due to manpower shortages.

For many commercial real estate professionals, the timeline alone makes ground-up projects difficult to justify.

 “Building a new building can take two years plus, depending on zoning and other factors, but redeveloping a building can be done a lot quicker,” Gabuzzi says, who points out that repurposing existing structures can also reduce rental rate gaps, making projects more financially viable.

The steep rise in construction costs and financing challenges has dramatically slowed the pace of new healthcare real estate development. With debt and equity harder to secure and material and labor costs steadily climbing, many developers are shifting focus away from ambitious ground-up projects. 

Instead, they are leaning more heavily on leasing within existing buildings, a trend that keeps healthcare services expanding but without the pipeline of fresh facilities that are expected in a fast-growing market.

As Johnson explains, “There’s been very little development being done because of the high cost of construction and high cost of capital and unavailability of debt and equity. Since there’s not a lot of new activity, that has spurred more leasing in the existing medical office buildings that we have.”   

The few new projects that do break ground are dominated by hospital systems and large investment-backed groups. Smaller practices and independent physicians often find themselves priced out, as only organizations with significant resources can absorb the cost burdens tied to modern construction.

As Kevin Smigiel, vice president of Transwestern Phoenix healthcare advisory service team, points out, “There’s been maybe four medical offices to have truly come out of the ground in the last two years. Most of them are all anchored by a hospital. With construction costs through the roof right now, our first preference is to find something that can be readily repositioned into a medical building.” 

 Combined, these dynamics make a commercial real estate market where adaptation is key. With traditional development slowed by cost barriers, healthcare real estate is leaning more heavily on creative reuse, strategic partnerships and hospital-backed projects to meet demand. While this limits the flexibility smaller providers once had, it underscores a broader truth: delivering healthcare in Arizona’s booming communities will increasingly depend on collaboration and resourcefulness in the face of economic pressure.