While the outlook for Twin Cities offices is undoubtedly bleak in the era of hybrid work, there is at least one silver lining in the world of commercial real estate. It's life science.
This vast sector includes a wide range of companies, including medical technology companies and device manufacturers such as Medtronic. The Twin Cities are also a thriving part of Minnesota's economy, with one of the highest numbers of medical technology jobs in the nation and a region receiving millions of dollars in federal aid.
That's evidenced by new data showing average building vacancy rates in the life sciences industry fell to just 3.3% in the metro at the end of the first quarter, according to commercial brokerage Colliers. At the same time, office vacancy rates stabilized overall but remained near record highs at 12.2%, while industrial real estate vacancy rates increased slightly.
Office buildings from suburban Minneapolis to downtown are selling well below their original prices, delaying mortgage and property tax payments and negotiations to convert them into residential land, while life science buildings are selling for well below their original prices. construction is on the rise. Several life science projects are currently underway or underway, adding hundreds of thousands of square feet of laboratory, production space, and research facilities to a region particularly well-known for medical manufacturing.
Experts say the Twin Cities has what it takes to become a life science hub, including top-tier research universities and major medical centers such as the Mayo Clinic and its recently announced $5 billion expansion. They say they have everything. From 2018 to 2022, the Twin Cities ranks second in the U.S. for medical technology jobs and third in total venture capital funding for healthcare equipment and supplies, according to a national JLL analysis. It was done.
Jessica Mogilka, Executive Vice President at JLL, said: “We are the grandfathers of them all, [Medtronic founder] Earl Bakken assembles a pacemaker in his northeast Minneapolis garage in the 1950s. ”
giant footprints
In many ways, the surge in life sciences development occurring in the Twin Cities is long overdue.
Michael Anderstrom, vice president and senior advisor for Colliers' life sciences team, said there is a lack of life sciences development in the Twin Cities compared to other commercial real estate markets. Despite being a major industry in the region, it only accounts for about 2% to 3% of the metro's total commercial market.
That's probably because projects are difficult and very expensive to build, given the specialized nature of such a business. If this happens, it is also difficult to reuse.
However, development is still ongoing. Minneapolis-based builder Ryan Koss has carved out a niche in the life sciences market, recently breaking ground on a $145 million build-to-suit project in Maple Grove. It includes 400,000 square feet of office and research and development facilities for Boston Scientific, the anchor tenant of the 100-acre Minnesota Science and Technology Center. This is in addition to Boston Scientific's current locations in Minnesota: a 79-acre campus in Maple Grove and a 92-acre campus in Arden Hills.
“For all the reasons that Minneapolis is a good place for Fortune 500 companies, it's also a good place for these medical technology users,” said Dan Mueller, Ryan's senior vice president of real estate development.
Ryan also recently completed construction of a 42-acre Innovation Center campus in Colorado for Medtronic. This includes an approximately 500,000 square foot facility with 60,000 square feet of laboratory/research and development space. And in 2020, Ryan developed a 132,000-square-foot headquarters for Colder Products, which makes quick-connect couplers for medical technology and pharmaceutical companies.
Mueller said focusing on medical technology projects is especially meaningful now because, unlike typical commercial projects, much of the work in this industry cannot be performed everywhere.
“These facilities require people, and you can't do it at home or in a coffee shop,” he said. “Cutting-edge technology cannot be created at home.”
flexible space
Part of what makes the Twin Cities' medical technology environment unique is its millions of square feet of “flex space,” Mogilka said. This is mostly a one-story building with office and warehouse capacity that device manufacturers can use in a variety of ways.
Mr. Mogilka serves on the board of University Enterprise Laboratories (UEL), a new 150,000 square foot laboratory space near the University of Minnesota campus. According to Anderstrom, UEL is one of his three dedicated lab spaces that serve as an incubator for companies ready to take the next step. This includes his 4-front campus in Oakdale and Mortenson's Discovery Square 1 and 2 in Rochester. All of these provide these startups with critical access to infrastructure and equipment that could one day grow into the next Medtronic or Boston Scientific in terms of prestige. And real estate.
But before these startups reach the level of building 100 acres, they may enter the flex space market.
IMRIS, which manufactures magnetic resonance imaging systems (MRI) that move on ceiling-mounted trucks in hospitals and clinics, previously built a renovated five-story building built in the 1970s in Minnetonka. I was using it and it was working. But the company ended up evolving in a way it couldn't in this space. The main reason was that the space was too large and unsuitable for the company's research and high-tech production needs.
“We realized that the space we were in was not fully optimized for the way we do business,” said Alan Weinberg, vice president of marketing and product management at IMRIS. I am. “The space we are in now is optimized for interaction.”
IMRIS moved this fall to a new facility in Chaska that includes offices and production areas.
Just this week, North Dakota-based life sciences company Aldevron requested millions of dollars in state aid to fund an expansion of a warehouse building it purchased in Eden Prairie in 2022.
“There is a tipping point when evaluating new buildings versus existing buildings,” Mueller said. “At some point, it becomes more cost-effective to work from the inside out and create a purpose-built building.”
Future
The private sector is not the only one driving the life sciences sector. With industry support, the economic partnership Greater MSP is spearheading efforts to expand the region's profile as a medical technology hub through an initiative called MedTech 3.0.
This initiative promotes collaboration among hospitals, research institutions, medical device manufacturers, and others. The group recently applied for $60 million in federal funding, but plans to move forward with its plans regardless of whether it receives it.
“We have so much expertise and a whole supply chain and ecosystem,” Mogilka said.
But Brent Webb, head of development at Mortenson, said such funding is essential to fostering the type of research and development that is essential to attracting and retaining talent.
“All of these things are connected in some way,” he says.
In late March, the University of Minnesota Foundation selected Mortenson as a development partner for the first phase of a 12-acre “innovation and economic development hub” called the Minnesota Innovation Exchange (“The Mix”).
Webb said the foundation has not yet identified an anchor tenant for the first phase of the project, which will be adjacent to the university's Biomedical Discovery District and a future clinical campus expansion near Huntington Bank Stadium. , said medical technology users are likely to be a component of this.
“MIX itself is not only building a framework to support researchers and their ideas, but also building connections with private industry,” Webb said.
Webb said that while the life sciences sector has been an optimistic part of the Twin Cities' commercial real estate scene, the sector has not been immune to the financing problems plaguing other industries. . He said venture capital funding has become difficult to obtain and many companies are focusing on investing in their businesses rather than expanding them.
“We're seeing some slowdown in growth,” he said. “We're not back to where we were three years ago.”
