Twin Cities, Richmond Area Booming for Medical Office Space

Outpatient volumes are expected to grow by nearly 33% in Minneapolis and 28% in Richmond over the next 10 years, making those two of the most promising medical office space markets, according to JLL.

“These rates exceed the national average of almost 21%, which is fueling the strong growth in medical office space in these regions,” JLL Managing Director Jay Johnson, U.S. Practice Leader, Healthcare Markets, tells GlobeSt.com.

“The outpatient growth is driven by increasing population in these metro markets as well as the continuing long-term shift of care from hospitals to outpatient locations, which are cheaper to build and operate and generally improve care outcomes,” Johnson said.

Medicare, Medicaid Push for More Ambulatory Settings

Ann Duginske Cibulka, VP of real estate development, healthcare at Ryan Companies, tells GlobeSt.com that Minneapolis-St. Paul is a mature healthcare market with established health systems.

“There have been tremendous opportunities for both health system and independent provider growth in the market in recent years,” she said.

“The national push from payers and Centers for Medicare and Medicaid to move care out of the hospital and into a more robust ambulatory setting has enabled strong provider-owned independent groups and competitive health systems to grow in multiple markets at once in the Twin Cities.

“Increased demand for orthopedic, gastroenterology, and outpatient surgeries have fueled new ambulatory surgery centers and specialty care facilities. Given the geographic layout of demographics and infrastructure in the Twin Cities, market-share competition has driven a hub-and-spoke model for both health systems and independent providers, adding facilities in all quadrants of the metro.”

Multi-Faceted, Master-Site Plans Popular

Duginske Cibulka said communities such as Maple Grove and St. Paul, where Ryan Companies is leading multi-faceted master site developments with medial office anchors, have density, commercial growth, and increasing populations that support demand for services on both ends of the age spectrum including mother-baby services with pediatric care, as well as geriatric care.

“Despite current staffing challenges including the active nursing strike from the Minnesota Nurses Association that affects each major health system in the Twin Cities, medical office space and inpatient expansion and renovation will continue in the market to keep up with the insatiable primary care and specialty services demand,” she said.

Minny Adding as Much as LA Market

According to a new report from 42Floors.com, “Lower-tier markets with aging populations saw some of the most growth in the past 10 years.

It ranked Minneapolis-St. Paul 15th for medical office space in the country with 231 buildings totaling 15.8 million square feet.

“However, the market has grown nearly 24% since 2012, adding 3 million square feet — almost as much medical square footage as was added in Los Angeles during the same period — as the 65 and older demographic makes up 17% of the population in Minneapolis and is projected to grow to more than 20% by 2038,” according to 42Floors.

Richmond-Tidewater was the 23rd-largest MOB market in the country by square footage, according to 42Floors, and it also has been a rapid growth trajectory the past 10 years.

Of Richmond-Tidewater’s 11.3 million square feet of medical office space, more than 2 million was built since 2012 — a market growth of 22%.

Medical office buildings (MOBs) have proven to be a particularly resilient asset class within commercial real estate through the pandemic,” according to 42Floors. “Most MOB tenants require these spaces to treat patients in person, thereby providing a more stable tenant base for the asset class.”

Colorado, Phoenix Add MOB Properties

CommercialEdge’s business manager, Doug Ressler, tells GlobeSt.com that new medical office supply has also been growing in secondary/tertiary life science markets.

“The development of ‘life science’ is a key factor in these markets which is promoting medical office building development,” Ressler said.

Some examples are evidenced by PNB and Montgomery Street Partners announcing they will be developing the first speculative life science property in Boulder County, Colo., and S3 Biotech is developing a 2.5-million-square-foot campus in Phoenix that includes life science, medical office, and sports science facilities, according to CommercialEdge.

“A recent CommercialCafe analysis of data from the Bureau of Labor Statistics (BLS) found Life sciences and MOBs are highest in the metros with growing STEM workers employment,” Ressler said.