The success of the multifamily and industrial sectors has been grabbing plenty of headlines. But there’s another commercial real estate sector that’s thriving today, too: healthcare real estate.
This isn’t surprising: The United States has an aging population, with plenty of people in need of a host of medical services. At the same time, the way people want medical care is charging. A growing number of consumers wants to receive their healthcare services at smaller, freestanding medical clinics and surgery centers. They don’t want to travel to a sprawling hospital campus.
These factors mean that plenty of healthcare providers are once again in expansion mode. And many are looking for sites on which to open surgical centers, medical office buildings and multi-speciality centers.
Allina Health is a good example: The healthcare system recently began construction of a multi-speciality center and primary care clinic in the Minneapolis suburb of Lakeville, Minnesota. Together, the two projects will total 100,000 square feet.
The 75,000-square-foot multi-specialty center at I35W and 185th St. in Lakeville will house an ambulatory surgery center and provide residents with more than 20 specialties, including orthopedics, oncology and women’s health.
Allina Health’s new 25,000-square-foot primary care clinic will be located in eastern Lakeville, near Cedar Avenue and Dodd Rodd. Both facilities are scheduled to open in the summer of 2023.
Brian Bruggeman and Louis Suarez, senior vice presidents with the Minneapolis office of Colliers, represented Allina Health in its procurement of both facilities. The pair also represented the healthcare system in its newly opened urgent care suite in Savage, Minnesota, and its Apple Valley Clinic, which will soon be expanding its primary care services.
Midwest Real Estate News recently spoke with Suarez about the growing activity in healthcare real estate, both from investors seeking a safe space for their dollars and healthcare systems working to bring their services closer to their patients.
How strong is the healthcare real estate market today?
Louis Suarez: We have seen a lot of activity. It has been robust throughout 2022 and the end of 2021 across the board. A lot of changes came with COVID. Healthcare providers faced a lot of issues. Some providers had to make a system-wide adjustment of how they delivered healthcare. Some put projects on hold. Those projects are starting come back online now. It is similar to what we are seeing in the economy in general: There is a lot of growth in different areas.
Healthcare providers look at the rooftops and growth in areas before they decide to open a facility in a community. As the market changes and grows, healthcare providers look to expand in those areas, too. Wherever we see a lot of new rooftops is where we see a growth in the demand for healthcare services.
This growth in the demand for healthcare real estate has been going on for a while now, right?
Suarez: It has been going on for more than 10 years. It’s the retailization of healthcare. Providers are moving clinics and services closer to their patients and where they live and work. A lot more healthcare will be delivered from locations where historically we had seen retail.
How has the way patients now want healthcare delivered changed the real estate plans of healthcare providers?
Suarez: Patients are looking for convenience. So providers are moving a lot of the ambulatory services off of hospital campuses. There is also a cost model here: It is less expensive to deliver healthcare outside of the hospital than it is to do it in the hospital. These smaller, off-campus locations free up spaces and services so that providers can provide more of the acute-care services on hospital campuses. You are seeing that with surgery centers and multi-disciplinary specialty groups pushing out to all the submarkets.
In new developments, cities and developers are looking at how healthcare can fit into an area that has a lot of retail in it. If a group is going to develop a large tract of land that includes retail and other services, it will plan where healthcare can go in conjunction with it. It’s not just a clinic stuck at the tend of a strip mall. It’s about putting real thought into where healthcare fits in that traffic pattern. Where does it fit in that complex? How does it fit within a larger development? It’s not about putting a neurologist next to a nail salon. It’s about thoughtful placement of these healthcare services.
Can you give an example of how this more thoughtful placement works?
Suarez: It’s not always easy to do correctly. You must manage traffic, parking and accessibility. But healthcare providers do want that visibility, signage and easy access. They want that high traffic flow. Healthcare providers are often looking at the same factors that retailers are interested in. Because of this, both healthcare and retail can be incorporated into the same developments very thoughtfully.
A good example is a project in Woodbury, Minnesota. There is a Target on the east side of the development. One of the outlots has a 30,000-square-foot medical office building for a large pediatric group. Down on the other side of the lot is another healthcare clinic. Thinking holistically, where do young families go to shop? Target is one of the first places they go. And the Target has a pharmacy. It makes sense to have a pediatric office in close proximity to that Target.
The medical office has its own separate parking lot, which is important, too. You don’t want a family walking their kids by a super high-traffic area. The way you move in front of a retail center is different than how you move in front of a healthcare provider. With healthcare, you want to park right in front of the building. The development has a separate access point and parking for the medical uses but is designed to be near the Target. It makes a lot of sense.
What other interesting trends are you seeing in healthcare real estate in the Twin Cities?
Suarez: Minnesota has been a leader in healthcare for decades. We have very large healthcare systems that provide excellent healthcare. We have seen more consolidation. We have seen very large groups that have merged and are now offering services across the region. We are going to see more of that consolidation. Independent healthcare providers are still growing, but they are consolidating. There are fewer of them. That is a trend we have been seeing and will continue to see.
In what submarkets are you seeing the greatest number of new healthcare developments?
Suarez: It mirrors where you see the main retail hubs. Primary care clinics are scattered throughout our market, but the larger specialty groups are locating in those main hubs of retail where you see a lot of strong traffic. Communities like Maple Grove, Edina, Woodbury and Lakeville are seeing a lot of healthcare real estate. There are some developments in Brooklyn Park and Eden Prairie. We are starting to see a lot of development in these pockets where historically there had been a significant amount of population and retail growth. That’s why Lakeville makes so much sense for the Allina developments: It is such a growing community.
Do you think the demand for healthcare facilities will continue to grow throughout 2022?
Suarez: Healthcare building assets have been in demand for several years because of their stability and the length of the leases for their tenants. It is a product type that has been incredibly sought-after by investors. The demand among investors who want to acquire healthcare properties is far higher than the supply. There are not many buildings for sale or products available. It is a challenge to get into this market.
The demand for this asset class will stay solid. A number of former clinics shut down in the last year or so, in part because of COVID. A lot of those properties have been sold and have become repositioned. There is not a glut of healthcare properties out there. There is still a limited amount of quality healthcare assets for investors. That demand is driving people to build new developments. I foresee more of that continuing forward.
What will also continue is this thoughtfulness around healthcare development. It’s no longer good enough to say that you have an outlot and you’d like to put a healthcare facility there. Now it has to be planned for as part of the original design of the development. That forethought will become more common.
