Robust New and Renewal Leasing Activity Continues
In the midst of slowdowns within healthcare real estate development and investment sales, the leasing landscape for medical spaces continues to thrive. Although telemedicine has carved its niche, there remains a steadfast demand for treatment within physical medical facilities. Minnesota has a particularly robust healthcare ecosystem that includes several strong health systems and independent clinic groups that collectively continue to fuel our leasing activity. The activity we’re seeing is comprised of:
Numerous medical groups are expanding their footprint by establishing additional locations. Others are strategically assessing their real estate portfolios, opting to consolidate and amplify their presence in successful market areas. Patient experience is paramount, and with current challenges in the labor market, so is staff experience. Many groups acknowledge that their real estate choices can significantly influence both. They are opting to lease space within high-quality, conveniently situated healthcare facilities.
Groups often find themselves content in their existing space and decide to extend their lease. Conversely, certain groups grapple with financial constraints that impede immediate expansion or relocation. While construction cost fluctuations and supply chain issues have eased post-pandemic, they continue to present challenges. Paired with current high interest rates, these factors can make the process of moving and constructing new clinic spaces particularly challenging. While Landlords are happy to keep their tenants, they have less flexibility to negotiate rental rates than in the past. Publicly traded real estate investment trusts (REITs) may be the most constrained, as they are driven by Wall Street’s demand for robust portfolio growth, which takes rent reductions off the table.
A shining example of a building that has experienced great recent new and renewal leasing activity is the Helene Houle Medical Center in Vadnais Heights, MN. The 56,700 square foot medical facility recently welcomed the 22,000 square foot Allina Health Surgery Center, and extended the lease of The Urgency Room’s successful site. Both entities are positioned to offer accessible, top-tier healthcare to the north central metro community for years to come.