How Minneapolis healthcare real estate remained strong amid challenges, shifts in patient care preferences: Lessons for other states

Editor's Note

In recent years, the healthcare real estate sector, particularly in the Twin Cities, Minneapolis, area, has seen a series of challenges because of the COVID-19 pandemic, staff shortages, rising costs, and increasing interest rates, RE Journals April 15 reports. And yet, the demand for healthcare spaces such as freestanding clinics and ambulatory surgery centers (ASCs) remains robust, which reflects a broader trend in patient preferences for receiving care closer to home in more convenient, community-based settings.

Ann Duginske Cibulka, vice president of real estate development for healthcare at Ryan Companies, highlights in the article that this demand is strong across both Minneapolis and St. Paul, as well as their suburban areas. There is a growing demand for modern, well-equipped spaces that can accommodate advanced medical equipment and provide a better patient experience. The migration of care from hospitals to ASCs is reportedly spurring demand for these modern spaces.

However, Cibulka also notes the presence of significant "feasibility challenges." These include the high costs of construction and the ongoing effects of inflation, though there has been some relief in recent months. Interest rates continue to pose a challenge, with hopes for reductions by the Federal Reserve not yet realized, causing providers to remain cautious in their expansion plans.

Beyond that, reduced revenues and increased costs in staffing and supplies, made worse by the pandemic, further complicates the financial landscape. These factors are squeezing the profit margins of healthcare providers, forcing them to be strategic about their real estate decisions. Cibulka advises healthcare groups to adopt a portfolio-wide perspective, focusing on expanding high-revenue locations and shedding less productive ones.

In terms of trends, there is an increasing adaptation of office spaces into healthcare facilities, although not all office spaces are suitable due to structural limitations and location constraints. MedCraft is one healthcare real estate company that is actively working on converting accessible office properties to meet the growing demand for healthcare spaces. In the article, providers are urged to make data-driven decisions and prioritize strategic growth despite the tough economic climate, finding ways to position themselves effectively in high-potential markets.