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MINNEAPOLIS-New construction activity is at an all-time high in the Twin Cities medical office market, with 775,000 sf of new product in the pipeline and more on the way in the second half, according to the latest report from locally based United Properties. Overall vacancy is tight at 9.4%, and several hospital campuses report virtually 100% occupancy for multi-tenant space at mid-year. According to United’s documentation, the on-campus vacancy rate is 6.4% at mid-year, while the off-campus rate is 14.9%.

“The medical office market is equally distributed between on- and off-campus projects, driven primarily by regional healthcare delivery organizations such as HMOs and hospital-affiliated organizations,” says Stephen H. Brown, vice president, United Properties Healthcare Group. “An increasing number of physician groups are vying with traditional retailers for high-visibility space in major retail districts for broader access to consumers.”

Mike Ohmes, senior vice president, United Properties Brokerage Services, says the healthcare investment industry in Twin Cities has substantially increased throughout the past five years. While the firm has been tracking office and industrial figures for nearly 15 years, the company just recently began following medical office movement.

“It’s a property sector that is coming into its own,” Ohmes tells GlobeSt.com. “People are paying attention to it now, when previously it was a fragmented market with only a few people working in it in the Twin Cities. In the past 12 to 18 months, a number of decisions have been made by health care groups and hospitals to get new developments rolling.”

Most recently, state lawmakers approved construction of a new regional hospital in Maple Grove, the first new Twin Cities hospital in two decades. The new hospital is expected to drive additional ancillary commercial development in the area, including more off-campus medical office buildings.

What’s more, says Ohmes, these off-campus medical office buildings are now being marketed as professional service and medical office facilities, reaching out to a broader tenant. “Investors are hedging their bets and building to accommodate medical needs without the look and feel of being exclusively a medical building,” Ohmes says. “It’s still too early to tell if there’s going to be a long-term trend, but we’ve seen this over the past two or three years. We’ll be watching this to see if it’s working for both medical users and other professional service firms.”

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