Category: Leasing Landscape

Navigating Complex Healthcare Real Estate Challenges

Healthcare real estate today isn’t just about finding space. It’s about making smart, strategic decisions in a world that keeps changing. Between rising costs, shifting clinical priorities, and new expectations from patients and providers, the healthcare real estate landscape has become more layered than ever. For many healthcare leaders, it can feel overwhelming.

That’s where Davis comes in. We help healthcare organizations see the full picture and make confident, well-informed real estate decisions. Whether they’re renewing a lease, expanding into a new market, or rethinking their entire footprint, our team brings clarity and strategy to what can often feel like a maze.

Why Healthcare Real Estate Can Be Complicated

Unlike other commercial real estate sectors, healthcare spaces have a lot of moving parts. Choosing a location isn’t just about convenience. It’s about making sure the site fits into a broader network of referral patterns, community needs, and service goals. A great site supports growth, while the wrong one can create significant challenges.

“The most successful healthcare real estate decisions consider referral patterns, patient demographics, and how the location fits into the provider’s long-term growth strategy,” says Principal Jill Rasmussen, CCIM, SIOR.

Leases are also more complex than they seem. There’s more to consider than just the rent. Items like maintenance fees, improvement budgets, and annual rent increases can add up quickly. If they’re overlooked, they can start cutting into your budget before the first patient walks through the door.

Then there’s the functionality of the space itself. Does the layout actually support the way your team works? Can the space adapt over time? Real estate isn’t just a location—it needs to support clinical care and workflow too.

For providers with multiple locations, the big picture becomes even more important. Balancing owned buildings, leased clinics, and joint ventures can get complicated quickly. A strong real estate strategy helps bring it all into alignment.

How Davis Helps Make It Simpler

At Davis, we work with healthcare users of all sizes to untangle the decisions that can stall growth or create unnecessary stress. If you’re looking for a new location, we go beyond the obvious to make sure it truly fits your goals. And if you’re managing a larger portfolio, we help you assess what’s working, where you may have gaps, and how to bring it all into better balance.

Our role is to quiet the noise. We support our clients in making decisions that are informed, sustainable, and aligned with long-term strategy. We think ahead and ask the kinds of questions that can help prevent surprises down the road.

What to Expect in a Real Estate Partner

When it comes to navigating healthcare real estate, the right partner matters. You want someone who understands your world: not just the real estate industry, but the way healthcare systems function, evolve, and grow.

You also want a team that communicates clearly and brings thoughtful solutions to the table. At Davis, we pair deep experience with curiosity and care. We know that healthcare real estate should support the important work our clients do. It should never get in the way.

What We’ve Learned Along the Way

We’ve spent decades in healthcare real estate, and we’ve learned a lot along the way. Getting everyone aligned early makes a huge difference later. The smallest lease details can turn into the biggest frustrations if they’re missed. Every market is different, and local insight always matters.

“The healthcare real estate landscape has evolved dramatically over the past three decades,” notes Rasmussen. “We’ve seen the shift from hospital-centric care to outpatient facilities, the rise of urgent care and specialty clinics, and the integration of telehealth considerations in space planning. What hasn’t changed is the importance of understanding each client’s unique clinical workflow and growth trajectory. Every healthcare organization has different needs, so cookie-cutter solutions often don’t perform well in this sector.”

Most importantly, we’ve learned that trust takes time. Projects run more smoothly when teams are aligned and communication is strong. That kind of trust can’t be rushed, but it can be built with consistency, presence, and follow-through.

It’s Not Just About the Space

Real estate decisions shape the future of care. They affect teams, budgets, and patient experience in ways that aren’t always obvious at first. The process may be complex, but it doesn’t have to be confusing. With the right guidance, it can feel clear and intentional.

That’s the kind of partnership we offer at Davis. We help you move forward with clarity and confidence every step of the way.

The Economics of Healthcare Leasing: Making Smart Real Estate Decisions in 2025

In 2025, healthcare organizations are navigating an increasingly complex real estate landscape, marked by rising costs, changing patient behaviors, and an ongoing push toward operational efficiency. For providers, smart leasing decisions aren’t just about square footage—they’re about sustainability, growth, and positioning care delivery for the future.

At Davis, we work at the intersection of healthcare strategy and real estate intelligence. We help providers, systems, and investors understand the economic drivers shaping leasing decisions today and how to make choices that support clinical outcomes and financial health alike.

Understanding the Shifting Landscape

There are several macro-trends that are influencing healthcare leasing in 2025:

  • Providers are increasingly opting for long-term leases to minimize capital outlay—freeing up funds for operational investments and minimizing short-term financial risk.
  • Rising construction and operational costs are pushing organizations to reevaluate space utilization and build-versus-lease scenarios.
  • Outpatient migration continues to drive demand for medical outpatient buildings (MOBs) in suburban and community-based locations.
  • Value-based care models are influencing the types of spaces providers need—favoring efficiency, accessibility, and flexibility.
  • Competition for prime locations near hospitals, transit, and population centers is increasing lease rate pressure.
  • Evolving patient preferences call for more convenient, comfortable environments that reflect a consumer-first mindset.

With these shifts in play, making leasing decisions based on outdated benchmarks can lead to underperforming locations or costly commitments that don’t serve your strategic direction.

Key Considerations in Today’s Lease Market

To make informed, forward-thinking leasing decisions in 2025, we advise healthcare organizations to consider:

  • Understand current market benchmarks—including build-out costs, gross rental rates, and common incentives—to avoid underestimating long-term cost exposure.
  • Total occupancy cost (not just base rent): factoring in CAM, taxes, and operating expenses.
  • Flexibility clauses that allow for growth, right-sizing, or changing care models over the lease term.
  • Space efficiency and how effectively the layout supports provider workflows and patient throughput.
  • Location dynamics, including access to complementary services, workforce hubs, and referral sources.
  • Long-term value alignment, including how the lease structure supports your capital strategy and expansion goals.

Whether leasing new space or renewing an existing agreement, every decision is an opportunity to support care delivery and reduce long-term risk.

How Davis Helps Clients Make Smarter Leasing Decisions

At Davis, we guide clients through a leasing process that’s rooted in market intelligence, clinical context, and operational foresight. Our approach includes:

  • Comprehensive lease analysis, helping clients evaluate short- and long-term cost implications.
  • Strategic site selection, informed by data on population growth, referral networks, and competition.
  • Customized negotiations, securing terms that align with clinical needs and long-range growth plans.
  • Real estate portfolio alignment, ensuring every lease fits within a broader care delivery and capital strategy.
  • Tenant representation, with a focus on protecting provider interests at every stage of the transaction.

From large health systems to independent specialty groups, we act as an extension of your strategic team, offering clarity, confidence, and negotiation leverage in a competitive market.

Leasing Longevity with Davis

The economics of healthcare leasing have never been more dynamic. In 2025, the most thoughtful decisions are the ones that balance today’s constraints with tomorrow’s possibilities.

We believe that healthcare real estate should do more than offer care; it should help deliver it. That’s why our team at Davis is committed to helping our partners make leasing decisions that work for today and endure for what’s next.

Maximizing ROI Through Strategic Healthcare Real Estate Leasing: A Win-Win for Investors and Practitioners

In today’s healthcare real estate market, strategic leasing approaches can significantly enhance returns for property investors while creating optimal environments for clinical practice success. When landlords and medical tenants align their interests, both parties benefit from improved financial outcomes and operational efficiency.

Tenant Mix: The Foundation of Property Value

A thoughtfully curated tenant mix serves as the cornerstone of successful healthcare properties. Complementary medical specialties drive natural patient referrals between practices, increasing foot traffic and patient volume for all tenants. Strategic anchor tenants provide stability while specialty practices add diversity, reducing vacancy risk and creating a more resilient property.

For clinical practices, being part of a well-designed medical ecosystem means greater patient capture and streamlined referral networks, directly impacting practice growth and profitability.

Location 

Modern healthcare location strategy extends beyond basic population metrics. Accessibility, visibility, and proximity to complementary healthcare services all significantly impact both property value and practice success. For investors, properties with superior healthcare-specific location attributes command premium lease rates and experience lower vacancy rates.

Clinical practices benefit from reduced patient acquisition costs and improved patient retention when situated in locations that align with their specialty and patient demographic. The right location can make the difference between a thriving practice and one that struggles to maintain volume.

Lease Structure Innovation

Innovative lease structures that balance investor returns with practitioner needs represent a significant opportunity. This balancing act often requires lots of creative problem-solving, but the resulting agreement can set both parties up for success.

Thoughtful TI allowance strategies can attract quality tenants, focusing on improvements that enhance both practice efficiency and long-term property value.

Options for expansion, extension, or relocation within a property give practices flexibility and security, while giving investors tenant retention advantages.

Rent abatement on the front end of a lease can help a practice ramp up a new location, while owners can often make up this income by adding the same number of months onto the end of the lease term at the higher ending rate.

Infrastructure Investment

Strategic infrastructure investments create competitive advantages for healthcare properties. High-capacity power systems, enhanced HVAC capabilities, extensive plumbing availability and advanced connectivity infrastructure can command premium lease rates while reducing future capital requirements and also give clinical practices the infrastructure needed to support modern care delivery.

Collaborative Planning Approach

The most successful medical buildings foster ongoing collaboration between investors and practitioners. Regular communication about evolving practice needs, upcoming lease expirations, and property improvement plans creates opportunities to align interests before critical decision points arise.

Case Study

A compelling example of strategic healthcare real estate leasing in action is the Davis collaboration with HealthEast (now MHealth Fairview) to create a destination ambulatory hub adjacent to a suburban hospital. HealthEast sought to consolidate its ambulatory clinics from the hospital and various medical buildings on and near campus into a single location designed to optimize the ambulatory experience.

What makes this project exemplary is the dramatic growth in demand it experienced. Davis expanded the building twice during construction—first from 80,000 sf to 120,000 sf, and then to 148,000 sf. This exceptional demand stemmed from multiple factors:

  • Strategic Location: The property’s proximity to the hospital created a natural healthcare ecosystem while offering superior visibility and access for patients
  • Tenant Synergies: As complementary specialties signed on, referral opportunities increased, driving interest from both HealthEast departments and independent practice groups
  • Purpose-Built Design: The facility’s modern infrastructure and patient-centric layout offered efficiencies unavailable in older properties, compelling additional practices to relocate

This case demonstrates how strategic planning and collaborative approaches create value for all stakeholders. The providers gained an optimized clinical environment enhancing patient experience, while the property achieved exceptional occupancy and value through thoughtful development.

Unlocking Value in Medical Real Estate: Our Expert Services

At Davis, we specialize in creating and implementing asset strategy plans for medical building owners and investors. Our comprehensive approach combines creative marketing, strategic lease-up initiatives, and deep market knowledge to maximize asset value. Here’s how we’ve helped our clients achieve exceptional results:

Strategic Site Selection and Development

Our team excels at identifying prime locations for medical outpatient buildings (MOBs) and healthcare facilities. We’ve successfully:

  • Researched markets to secure premier sites for new construction, such as the 44,000 sq ft Maple Grove Specialty Center and the 78,000 sq ft Xchange Medical Building in St. Louis Park.
  • Assembled multiple parcels in mature markets, like the 63,500 sq ft Minnetonka Medical Center, creating a valuable and strategic expansion opportunity for North Memorial.
  • Targeted specific locations to meet client needs, such as the 12,000 sq ft Rosemount Professional Building for Lorenz Family Clinic.

Anchor Tenant Acquisition

We understand the importance of securing anchor tenants to kick-start developments:

  • Pre-leased 20,000 sq ft to Minnesota Gastroenterology (MNGI) for CityPlace Medical in Woodbury, enabling construction to begin for MNGI’s schedule and allowing for a larger building to reduce occupancy costs.
  • Secured Allina Health Surgery for a 40,000 sq ft Class A MOB in Brooklyn Park, marking their first ASC with SCA in northern markets.
  • Partnered with Midwest ENT to create a joint venture ownership structure for freestanding buildings in Vadnais Heights, Woodbury and Lakeville.

Rapid Lease-Up and Full Occupancy

Our creative marketing and leasing strategies consistently deliver impressive results:

  • Achieved 100% occupancy for the 78,000 sq ft Xchange Medical prior to construction completion.
  • Expanded two medical building developments during construction due to substantial tenant demand in MHealth Fairview Clinics & Specialty Center and Lakeville Specialty Center.
  • Leased 90% of the 35,000 sq ft Savage Medical Building prior to construction completion, reaching 100% occupancy within the first 12 months.

Value Creation through Strategic Leasing

We excel at repositioning existing assets to maximize value:

  • Converted a 55,000 sq ft office building at 7450 France Avenue to a 100% medical building with eight long-term tenants.
  • Completed seven new leases at or above market rate for the 55,000 sq ft Wolfe Lake Professional Center.
  • Maintained 98%+ occupancy over a 10-year period for the 43,404 sq ft Gardenview Medical Building on the United and Children’s Hospital Campus.
  • Purchased a vacant 13,000 sq ft clinic building and expanded to and fully leased 30,000 sq ft.

Portfolio Optimization and High-Value Sales

Our strategies often result in profitable exits for our clients:

  • Sold the New Albany Medical Center in Ohio at the top of the market to a medical REIT after acquiring the asset and completing three new leases and constructing a skyway from the building to the Hospital for ease of access for patients and staff.
  • At the Unity Professional Building, Davis was able to coordinate and effectively manage a large tenant expansion lease and relocate, renew and expand three other tenants within the building to increase occupancy and building value. Our client was able to sell the fully leased asset to a local investor at an above market price. 
  • Davis purchased a 55,000 sq ft medical outpatient building from The Urology Group in Ohio, giving them the opportunity to monetize the asset and reinvest into their practice’s provision of premier patient care.

At Davis, we combine our deep understanding of the healthcare real estate market with innovative strategies to create substantial asset value for our clients. Whether you’re developing a new medical facility, repositioning an existing asset, or looking to optimize your healthcare real estate portfolio, our team has the expertise and track record to help you achieve your goals.

 

Integrating Medical Clinics into Non-Traditional Spaces

Addressing challenges and leveraging benefits through Noran Neurology’s successful transformation of an office building space into a specialty clinic.

Leasing non-medical buildings for medical clinic use has been driven by a blend of economic, logistical, and patient-centered considerations. Healthcare providers have turned to retail and office spaces to establish clinics due to prime locations, accessibility, and possible cost advantages, but it’s generally due to a lack of available outpatient medical building options in a market area.

Healthcare providers continue to be driven by the quest for patient convenience. High foot traffic, prominent signage, ample parking, and proximity to residential areas are highly sought-after attributes that many retail and some office building locations offer. However, these spaces present a unique set of challenges and opportunities for healthcare facilities.

 

An illustrative example is Noran Neurology’s 22,000 square foot clinic, leasing 22,000 square feet in the France Place office building in Bloomington. After conducting extensive analysis, including reviewing patient demographics and patterns, it was concluded that consolidating services from multiple locations into a single, well-located facility was the best solution.

Located prominently on France Avenue, the space offers ample parking, superior signage opportunities, and enhanced visibility—essential features that made it a cost-effective alternative to new construction. Additionally, the lack of suitable land for new outpatient medical buildings in the area made the existing office building a viable option.

The transformation of the office space into a functional medical clinic presented several challenges, including significant renovations that involved the removal of steel beams and exterior adjustments to accommodate medical equipment like the MRI. Essential infrastructure upgrades were necessary, such as enhancing water capacity, installing the appropriate signage, and improving wayfinding to ensure operational efficiencies. Properly addressing zoning issues was also crucial, as the space had to be adapted to meet all required health and safety regulations and standards.

The success of Noran Neurology’s new clinic hinged on the collaborative efforts of Davis, and our project partners. Together, our comprehensive understanding of outpatient clinic needs ensured that the project was completed on time and within budget, resulting in significant economic savings and enhanced patient access.

While integrating medical clinics into non-traditional spaces like office buildings or retail locations can be a viable alternative when other medical outpatient buildings are unavailable or affordable land for new construction is scarce, it’s not without challenges. This approach should only be considered if these locations are well-situated and meet specific criteria. The success of Noran Neurology demonstrates that with meticulous research, careful planning, and a strategic investment in infrastructure, clinics can thrive even in non-medical buildings. This method, though not ideal, can be made workable by addressing potential issues, ultimately reducing costs and enhancing patient convenience and access, thus meeting the evolving needs of patients and providers. 

 

The Most Successful Negotiation is One That Crosses the Finish Line

When it comes to commercial real estate, artful negotiation is the cornerstone of success. Whether you’re a seasoned owner or just starting out, the ability to navigate a negotiation can make or break a deal. Here are some key considerations and strategies that can help to get your transaction across the finish line:

Don’t Do It Alone

In complex commercial real estate transactions, particularly in the healthcare space, it’s wise to seek advice from experienced professionals such as real estate brokers, attorneys or financial advisors. Healthcare deals are often expensive long-term commitments. The guidance of the right qualified advisors who live in the healthcare real estate world day in and day out can provide valuable insights, mitigate risks, and ensure that your interests are expertly represented throughout the negotiation process.

Do Your Homework
Knowledge is power in negotiation. Before entering into any negotiation, thoroughly research the property, comparables, the other party and their motivations. Having a deep understanding of the overall context and underlying factors of the deal will give you leverage and confidence during discussions. Your advisory team can help you access and process this information.

Set Clear Objectives

Define your goals and priorities before initiating negotiations. Determine your desired outcome; including price, terms and any contingencies. Having clarity on what you want to achieve will guide your negotiation strategy and help you stay focused during discussions.

Build Rapport

Establishing a positive relationship with the other party and/or your client is essential for successful negotiations. Be respectful, empathetic, and professional in your interactions, even when things get tense or drag on way longer than they seem they should. Communicate consistently and follow through with building rapport to create trust and foster open communication, so it’s easier to find mutually beneficial solutions.

Listen Actively

Effective negotiation is not just about making your case; it’s also about understanding the other party’s perspective. Practice active listening to comprehend their needs, concerns, and objectives. By demonstrating empathy and understanding, you can tailor your proposals to address their interests while advancing your own agenda.

Look for Win-Win Solutions

Strive for outcomes that benefit both parties involved. Instead of viewing negotiation as a zero-sum game where one side wins at the expense of the other, aim to identify opportunities for mutual gain. Collaborative approaches often lead to more sustainable agreements and long-term relationships.

Don’t be Surprised by Compromise

Negotiation inevitably involves give and take. Identify areas where you’re willing to be flexible while prioritizing your non-negotiables. By showing a willingness to compromise on certain aspects, you can encourage reciprocity from the other party and more quickly facilitate progress toward a mutually acceptable agreement.

Document Agreements in Writing

Once an agreement is reached, document the terms in writing to avoid misunderstandings or disputes later on. A well-drafted contract should clearly outline the rights, obligations, and responsibilities of each party, providing a solid foundation for the transaction. We always recommend using an attorney with relevant experience to draft any legally binding documents.

Here at Davis, we proudly employ these strategies. In combination with our unparalleled healthcare real estate expertise, our team completes +/- 100 transactions annually, and would be honored to help you with yours.

Ambulatory Surgery Centers: Elevating Care with a Focus on Convenience and Quality

Collaborating with developers to manage costs and potential delays, providers are increasingly opting for long-term leases to avoid significant capital investment. In this article we will explore the financial aspects, including rental rates, build-out allowances, and operating expenses, while emphasizing the current challenges and future trends.

We’re amid a significant shift in the healthcare landscape, driven by demographic changes, the necessity of cost control, and the relentless pursuit of improved patient and staff experience. This is fundamentally changing the way healthcare is delivered, and the leasing market is evolving in step with this shift. As a result, we are witnessing a significant transformation in the landscape of healthcare real estate, with the leasing of ambulatory care clinics and surgery centers playing a critical role in this change.

Providers, in their pursuit of optimizing patient care, are forging partnerships with developers to reduce cost burdens and improve proximity to their patient base. By opting to lease, healthcare providers can conserve capital for other essential operational and medical needs. Instead of tying up capital in real estate, providers can invest in areas such as advanced medical equipment, cutting-edge technology, or specialized staff—resources that directly contribute to the provision of superior patient care.

A prime demonstration of this trend is the Lakeville Specialty Center, a collaboration between Davis, Allina Health, Allina Health Surgery, and MNGI Digestive Health. Lakeville is a fast-growing market and these providers implemented strategic plans to enter Lakeville and provide quality specialty care along with day surgery services. The strategically located 100,500-square-foot facility which houses two ambulatory surgery centers (ASCs) and opened in January 2024, was established under long-term leasing agreements that enabled these healthcare providers to expand their services without a significant strain on their financial resources.

Other successful surgery center projects we have completed recently that support this trend include Surgical Specialty Center of Minnesota at Xchange Medical in St. Louis Park, Allina Health Surgery at Helene Houle Medical Center in Vadnais Heights, MNGI Digestive at Maple Grove Specialty Center, Allina Health Surgery and Orthopedics at 610 Medical in Brooklyn Park and Midwest Surgery Center at Eagan Specialty Center.

Long-term leases spanning 10 to 20 years are now the norm, as they reflect the substantial time and financial investment required to build out new specialty care space (often upwards of $160/sf for clinic space, and $300/sf for ASC space), especially in the current economic conditions fraught with supply chain delays and escalating costs. In response, landlords are now offering sizable build-out allowances, often exceeding $100 per square foot, to expedite tenants’ capital approval processes.

Rental rates have seen an upturn, largely due to climbing interest rates and construction costs, ranging from $28 to $32+ per square foot, depending on factors like lease term, improvement allowance, and tenant credit. Coupled with operating expenses often exceeding $20 per square foot, gross rental rates can easily surpass $50 per square foot. Annual rent increases have pushed to and above 3% due to continued higher inflation.

Looking forward, this shift in the healthcare market is likely to spur innovation and drive the development of more efficient, flexible, and patient-friendly facilities. With the continued transition towards value-based care and outpatient services, the leasing of ambulatory care clinics and surgery centers is poised for growth. By choosing to lease, healthcare providers are not only positioning themselves to adapt to the evolving demands of their patient population but also capitalizing on opportunities to innovate and enhance the delivery of care.

Robust New and Renewal Leasing Activity Continues

In the midst of slowdowns within healthcare real estate development and investment sales, the leasing landscape for medical spaces continues to thrive. Although telemedicine has carved its niche, there remains a steadfast demand for treatment within physical medical facilities. Minnesota has a particularly robust healthcare ecosystem that includes several strong health systems and independent clinic groups that collectively continue to fuel our leasing activity. The activity we’re seeing is comprised of:

New Leasing

Numerous medical groups are expanding their footprint by establishing additional locations. Others are strategically assessing their real estate portfolios, opting to consolidate and amplify their presence in successful market areas. Patient experience is paramount, and with current challenges in the labor market, so is staff experience. Many groups acknowledge that their real estate choices can significantly influence both. They are opting to lease space within high-quality, conveniently situated healthcare facilities.

Renewals

Groups often find themselves content in their existing space and decide to extend their lease. Conversely, certain groups grapple with financial constraints that impede immediate expansion or relocation. While construction cost fluctuations and supply chain issues have eased post-pandemic, they continue to present challenges. Paired with current high interest rates, these factors can make the process of moving and constructing new clinic spaces particularly challenging. While Landlords are happy to keep their tenants, they have less flexibility to negotiate rental rates than in the past. Publicly traded real estate investment trusts (REITs) may be the most constrained, as they are driven by Wall Street’s demand for robust portfolio growth, which takes rent reductions off the table.

Property Spotlight

A shining example of a building that has experienced great recent new and renewal leasing activity is the Helene Houle Medical Center in Vadnais Heights, MN. The 56,700 square foot medical facility recently welcomed the 22,000 square foot Allina Health Surgery Center, and extended the lease of The Urgency Room’s successful site. Both entities are positioned to offer accessible, top-tier healthcare to the north central metro community for years to come.