Twin Cities Medical Office Space Sees Continued Momentum on Numerous Fronts in First Half

The Twin Cities multi-tenant medical office market, totaling more than 6 million square feet (msf) continues to perform well. The overall vacancy rate held mostly for first-half 2013, only increasing to 9.8% compared with 9.7% at year-end 2012. Many on-campus or healthcare system-sponsored facilities are essentially full, with eight hospital campuses reporting once again zero vacancies in their multi-tenant space. Off-campus space reported an 11.6% vacancy rate and on-campus space was 8.0%.

The slight increase in vacancy was due to the 8,309 sf of negative absorption in first-half 2013. Medical office space continued outperforming the Twin Cities general office market, which reported a 17.5% vacancy rate.

Landlords of well-positioned, well-maintained properties saw improvement in overall economics as the market continues to tighten.

Outlook
Medical office space should continue to perform well in second-half 2013 as demand remains strong and the current momentum driving new development activity continues. As construction finishes in the summer and fall, with much of the space already successfully preleased, more than 100,000 sf of positive absorption is expected for the year.

Moving toward 2014, the industry is preparing itself as a new set of rules under healthcare reform takes effect. This includes implementation of the Health Insurance Exchange, which will allow consumers the ability to “shop” for healthcare coverage, and initiation of the individual mandate requiring everyone to have some legitimate form of health coverage.

More mergers and/or alliances are expected to take place at both national and local levels. This will have a definitive impact on real estate inventory. The smaller independent practices will be most affected as they try to remain economically viable.

At the same time, the off-campus market will continue to evolve to find the best way to serve patients under the new healthcare model as it takes hold in 2014. An emphasis on delivering care closer to the patient, along with strategic structuring of medical services through a continuum of care model (often formalized through an accountable care organization [ACO] composed of providers and their partners sharing services and accountabilities), has providers evaluating how they are serving their patient populations. This will likely result in the continued trend of moving ambulatory care clinics away from expensive on-campus hospital settings. Healthcare systems are expected to continue their strategic positioning in suburban off-campus markets as they adjust to an ACO-type delivery of service.

The “retail effect” will likely continue to be a major trend as healthcare providers and practitioners seek out space in locations that offer easier access and convenience to their patients. They could become a fixture of the neighborhood center. Real estate developers are seeing the importance of having medical users in their merchandising plan, and many new mixed-use developments are marketing a medical component.

To read more, visit the July 2013 edition of Cushman & Wakefield/NorthMarq’s Compass report, now available online.  Visit the web site: www.northmarqcompass.com

About Cushman & Wakefield/NorthMarq

​Cushman & Wakefield/NorthMarq is a joint venture formed in September 2011 by NorthMarq Real Estate Services and the Minnesota operations of global real estate services firm Cushman & Wakefield. By combining the talent of both organizations at the regional level with the global platform of Cushman & Wakefield, we offer clients the best combination of regional strength and global capabilities. The result: the leading commercial real estate firm by all measures in the Upper Midwest.
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