Changing demographics and high borrowing costs are driving rent growth in the outpatient medical office sector, even as sales activity slows and new construction lags. According to a new report from Colliers, the capital-intensive nature of outpatient medical facilities, combined with elevated borrowing costs, is pushing rents up in markets across the country, particularly in midsize cities.

Colliers found that the vacancy rate for medical outpatient facilities is around 7.5% nationally, while the broader office sector's vacancy rate reached 17.5% at the end of June.

The report highlights that midsize cities have been the biggest winners in terms of rent growth for the subsector over the last 12 months. Des Moines, Grand Rapids, and Myrtle Beach saw the largest year-over-year rent increases at 9.6%, 6.1%, and 6.0%, respectively. Still, average rent growth across all markets rose by 2.2%, with Boston and Miami seeing increases of 2.9% and 3.7%, respectively.