Investors and developers are finding renewed opportunity in the Chicago region’s suburban medical office market, where demographic trends and delivery models are converging to reshape healthcare real estate.
Silver Cross Medical Pavilion D in New Lenox and the planned Beacon Hill Medical Pavilion in Crown Point, Indiana, are more than new medical buildings. They illustrate a broader shift in regional healthcare real estate — one shaped by aging demographics, rising development costs, the decentralization of healthcare and the growing appeal of suburban access and convenience.
“2025 marks the peak in the number of people who are turning 65, according to a research report by Jason Fichtner, executive director of the Alliance’s Retirement Income Institute,” said John Wilson, president of HSA PrimeCare.
That surge in aging patients is driving demand for outpatient services across the region. Jonathan Swindle, president of Waveland Property Group, Inc., said this demographic shift is colliding with operational and financial changes across healthcare systems.
“Demand for medical office space in the Chicago area is rising due to an aging population requiring more healthcare services, the shift toward outpatient care, and health systems decentralizing from hospitals to community-based locations,” Swindle said.
Developers and investors are responding by pursuing suburban projects that prioritize long-term leases, flexible design and proximity to where patients live.
“Additionally, patients increasingly seek convenient, accessible care in suburban areas. Medical tenants are drawn to stable, long-term leases, making this sector attractive to investors seeking resilience and steady returns in a dynamic commercial real estate market,” Swindle said.
“Growth is evident in both urban and suburban areas,” Wilson confirmed. “Two of HSA PrimeCare’s focus areas for development activity are the Chicago suburban markets and Northwest Indiana.”
Two projects illustrate how suburban medical office strategies are being applied on the ground. In New Lenox, Silver Cross Medical Pavilion D offers nearly 42,000 square feet of outpatient services on the hospital’s campus. Fully occupied as of July 2023, the two-story facility includes urgent care, wound care, primary care, occupational health and specialized services such as urology, dermatology and cardiac rehabilitation. It also features a patient-friendly drop-off area and reflects the strong demand for accessible suburban care.
Further south in Crown Point, Indiana, HSA PrimeCare is planning the Beacon Hill Medical Pavilion. Still in the early stages, the Class A development could span up to 60,000 square feet and would anchor a larger mixed-use community. With direct access to I-65 and proximity to providers like UChicago Medicine and Community Healthcare System, the project is designed for flexible leasing and a broad range of outpatient services, targeting one of the region’s fastest-growing population areas.
Still, the suburban focus is as much about constraint as it is about opportunity.
“The urban medical real estate environment seems highly controlled and guarded by three of four major healthcare organizations,” Swindle said. “There is very little room for free-standing medical office buildings.”
He noted that suburban development brings its own challenges, especially when it comes to making the math work.
“The demand for stable medical office investments is in the suburbs but the current obstacles are balancing base rent, cam, taxes, and build-out costs (which are on the rise) with the tenant’s pain thresh-hold for paying rent and signing a long-term lease,” Swindle said.
At the same time, the way healthcare is delivered continues to change. Outpatient services and telehealth are not just shifting location preferences; they are reshaping the physical spaces themselves. Wilson emphasized the need to build infrastructure that supports virtual care.
“With AI accelerating the evolution of telehealth, it’s increasingly important to account for virtual care infrastructure when designing or renovating medical properties,” he said.
Facilities, he added, must also support multiple outpatient services and offer seamless virtual consultation capabilities.
Swindle has observed similar design priorities emerging in the properties his firm leases and manages.
“The shift toward outpatient care and telehealth has driven demand for flexible, tech-enabled medical office space with smaller footprints, decentralized locations, and improved patient access,” he said.
Landlords, he noted, are responding with adaptive layouts, strong connectivity and service areas located near where patients live.
Ownership patterns are shifting in tandem. Both Wilson and Swindle said healthcare systems are increasingly opting to lease space to maintain operational flexibility and limit long-term financial commitments.
“There has been a growing trend among health systems to evaluate both leasing and owning their medical office spaces,” Wilson said. “This is driven by the desire for financial flexibility and the ability to adapt to changing healthcare delivery models. By leasing, health systems can allocate capital more efficiently, focusing resources on core clinical operations rather than real estate investments.”
“The large groups have a hybrid model,” said Swindle, offering additional detail on ownership strategy. “They may own or JV to own large specialty centers such as oncology and orthopedics. But in general, large hospital networks would prefer to be renter and put the burden of long-term financing and construction allowances on the landlords. Most suburban buildings are owned by third-party investment groups and REITs, which make up the majority of Waveland’s core clientele.”
In this climate, interest rates and construction costs are top of mind.
“Elevated interest rates and construction costs have impacted decisions, leading to a slowdown in new development,” Wilson said. “There’s a renewed interest in second-generation spaces due to potentially lower build-out costs and quicker occupancy.”
Swindle added that capital constraints are slowing progress unless landlords or investors are willing and able to foot the bill.
“The math is fairly simple,” Swindle said. “If it is more expensive for the medical practice to modify an existing space or to build-out a vanilla box then someone has to pay.”
Landlords often struggle to recover those costs, while tenants balk at paying them. As a result, projects increasingly go to well-capitalized investors with a long-term strategy.
“Free-standing medical office buildings are at the mercy of the space requirements of the large health networks,” Swindle said. “Those landlords with a 10 and 15 year risk horizon will win over landlords who are trying to quickly fill a building up and flip it.”
He added that Waveland’s own strategy has been rooted in lasting relationships.
“Started 20 years ago, Waveland had a core belief that high-quality property management and open communication (and often friendship) with tenants was a much stronger driver of lease renewals and new leases than billboards and open-houses,” Swindle said. “The medical community in Chicago is very powerful but also fairly insulated and guarded. Word of mouth and reputation still matter a great deal within this fairly tight community. At Waveland, we feel confident in the future need for adaptive and updated medical office spaces that are managed in the most efficient and client-focused ways possible.”
Looking ahead, Swindle and Wilson acknowledged the headwinds, but see a clear path forward.
“Fluctuating interest rates and construction costs may hinder new developments, yet there are opportunities to repurpose existing buildings to meet demand for both in-person consultations and telehealth appointments,” Wilson said.
He also cited ongoing labor shortages as a potential bottleneck.
“Another challenge facing the broader sector is a limited supply of healthcare professionals,” Wilson said. “Health Catalyst predicts a shortage of registered nurses reaching 450,000 by 2025 and a physician deficit of up to 120,000 by 2034. These shortages underscore the need for strategic planning to ensure facilities are designed and located to maximize efficiency and accessibility, even amid staffing constraints.”
Yet despite economic pressure and labor hurdles, the medical office sector remains a favored long-term play.
“Although elevated construction costs, rising interest rates, and a gradual post-pandemic recovery by hospitals and providers have slowed new medical office development, this moderation has helped keep supply and demand in balance,” Wilson said. “As a result, occupancy rates remain stable, and rents are experiencing gradual growth. This trend mirrors patterns observed in the industrial sector, where a slowdown in new supply has contributed to market equilibrium.”
Retail backfill has also emerged as a new growth avenue.
“Providers are repurposing former retail locations to house urgent care centers, primary care clinics and specialty practices. This strategy enhances accessibility for patients and aligns with the shift toward outpatient care,” Wilson said. “The enduring demand for healthcare services, particularly among the aging population, positions the medical office sector for sustained growth in the latter half of 2025 and into 2026.”
With demographics on their side and a new playbook in hand, Chicago’s medical office developers are planning for a healthy future.
