Minnesota Nice: Medtech Industry Gives Steady Boost To Office, Biotech Real Estate Markets

Life sciences leasing in Minneapolis, specifically by medical tech firms, has provided a small boost in a city and downtown struggling like so many others to overcome tepid office activity. 

While the Twin Cities’ office vacancy hit 13.8% at the end of 2023, according to Colliers data, life sciences vacancy decreased to 3.3%. Even though the region’s 15M SF of life sciences space represents a fraction of the roughly 550M SF of total office space, it has offered a small boost during a challenging time for leasing.  

“Life science is truly a bright spot,” said Colliers Associate Vice President Michael Anderstrom, a life sciences expert. “Frankly, it commands the highest rents in the Twin Cities. True lab space goes for $40 to $50 per SF, while new offices are in the high $30s.”

That success is also putting pressure on expanding capacity, a healthy sign for any up-and-coming life sciences market, which tend to struggle with the chicken-and-egg dilemma of building up lab capacity alongside new startups. 

“Somebody just needs to step up and take the risk,” Anderstrom said.

Minneapolis may be off the beaten path when it comes to traditional life sciences, but it is a medical technology powerhouse, with 15 of the world’s 20 top firms in the industry, plus giant Medtronic, which has a $101B market cap. JLL reported the Twin Cities was third in the nation for healthcare device venture capital funding between 2018 and 2022.

“Medtech is the less flashy, sexy sibling of traditional life sciences,” said JLL Executive Vice President Jessica Mogilka, who co-leads the local life sciences group. “It’s small but very mighty here, and helping keep our real estate market very healthy.”

This institutional strength continues to buoy new startups and new developments, especially the influential Mayo Clinic, located 90 miles away in Rochester. 

Last year, the region saw a relative flurry of new developments. Biotech firm Boston Scientific invested $170M in a 400K SF Maple Grove facility, part of the 100-acre Minnesota Science and Technology Center being built by local firm Ryan Cos. Mayo Clinic announced a $5B investment in its campus. And a downtown mixed-use University of Minnesota project with 200K SF of lab space, the 1.4M SF Minnesota Exchange, or The MIX, broke ground just south of the school’s football stadium.

The Biden administration also designated Minneapolis a Minnesota MedTech Hub 3.0 last year, part of a national investment in new technologies, which may mean $60M of funding to expand the hub.  

Even the region’s medical office market has been strong, helped by a move toward more plentiful and smaller clinic locations and a growing suburban population.

One of the strengths of the region’s growing life sciences ecosystem is the millions of square feet of flex warehouse and office space that tends to be the early home for startups. These spaces offer a cheap way to start, Anderstrom said.

But the market needs more next-stage graduate space, such as 10K SF or 15K SF lab and office offerings for slightly more mature firms, to build out the industry and keep local talent from leaving. 

Mogilka also said the region needs more wet lab space to help encourage more traditional life sciences growth. Increasingly, new therapies are blurring the lines between medical devices and new therapeutics, she said. It is creating more integration between devices and pharmaceuticals, which may mean more Big Pharma interest in expansion and lab space in the Twin Cities.

Even incubators and new startups are feeling a space crunch, Anderstrom said. Colliers is working on leasing a forthcoming 100K SF office-to-lab conversion to add much-needed space to the market. Funding for startups has remained steady, and early stage and incubation space remains plentiful, he said.

It is taking the next step, for a firm and the market as a whole, that remains challenging. 

“If you want to ask someone to build out lab space at $100 or $150 per SF to make a bet on a growing startup, forget about it,” he said.