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METRO
MARKET OVERVIEW
Beginning with this issue, United Properties Outlook is covering Medical Real Estate (MRE) as a separate category within the Twin Cites commercial real estate market. MRE is a very specialized sub-section comprised of medical office buildings that are primarily occupied by healthcare services companies and practice groups. These buildings are located both on-campus at hospitals and major ambulatory surgery centers and off-campus in various communities throughout the Twin Cities.
On-campus properties are defined as being physically connected to a major health care center campus, and available for lease to a variety of tenants. Off-campus properties are buildings at least 50% leased and/or marketed specifically to the healthcare services industry and not connected to a health care campus. Space occupied by companies involved in the manufacture, marketing and distribution of medical technology, bio-technology and pharmaceutical products continues to be tracked in the broader office commercial and industrial space markets.
MRE Off-Campus Universe Includes Four Submarkets
United Properties divides the universe of off-campus MRE into four geographic submarkets. (The accompanying map illustrates the separation by submarkets.) Vacancy rates among the off-campus properties tend to be higher than for those properties clustered on health center campus facilities. Off-campus medical office buildings tend to be more vulnerable to economic ups and downs than those properties clustered around major medical facilities.
Properties Tend To Have Longer Staying Power Than In Commercial Office
And Industrial Markets
Investor interest in MRE has surged in recent years, attracted by the sector’s reputation for stability and growth. Medical tenants, seeking to establish an ongoing presence in a community, tend to agree to longer leases than do tenants in commercial office and industrial markets. Once their practice is established in a particular location, medical tenants also tend to stay in place – both for the convenience of patients and patient referral sources and because of their specialized requirements for space and infrastructure.
Healthcare Services Employ 7.4% Of Total Twin Cities Marketplace
Healthcare services employs 130,000 people in the Twin Cities, according to the Minnesota Department of Economic Security – 7.4% of the total workforce in the metro region. Those numbers are expected to grow over time, as the Twin Cities population continues to grow and as baby boomers age and become more avid consumers of healthcare services.
Twin Cities MRE consists of 58 different buildings, comprising 3,840,798 square feet of net rentable area. Vacancy among all metro area MRE office buildings at year-end 2002 is 10.4%. In the 34-building off-campus submarket, the year-end vacancy rate is 15.1%. Off-campus properties total 2,053,175 square feet, or 53.5% of available MRE space. The average quoted rental rate for off-campus space is $16.16 per square foot.
Among the 24 on-campus properties, the metro-wide year-end vacancy rate is 5%. Total space in the on-campus MRE universe is 1,787,613 square feet. The average quoted rental rate is $17.81 per square foot.
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