Next time you have your teeth cleaned or your blood pressure checked, it’s possible that you will be doing so in an area that was once filled with frying pans or face creams.
Health care providers are increasingly choosing former stores for their offices and clinics, in a trend known as medtail — a reflection of the medical industry’s migration to retail properties.
Their expansion into retail space has been accelerated by the pandemic. Depressed rents are allowing medical providers to open facilities in storefronts along city streets. They also move into malls and shopping centers in suburban areas and rural areas, often occupying the huge shells of big-box and departmental stores.
In the past, landlords might not have welcomed such tenants — some just didn’t want sick people around their properties, experts say — but they are increasingly seeking them out to fill vacancies and help generate foot traffic that may benefit the other occupants. This is especially true of health care providers who are branded as wellness companies and adopt the appearance and feel of consumer-oriented retail outlets.
“The retailization of health care has really exploded,” said Barrie Scardina, a retail expert for Cushman & Wakefield.
Since a while, the medtail concept is gaining popularity. According to data from CoStar Group research, 20% of leased medical space today is located in retail buildings. This compares to 16% in 2010.
It remains to be seen if health care tenants can make a significant dent in retail vacancies due to the rise of ecommerce, an increase that has been exacerbated by the pandemic. There are many obstacles for health care start ups, including a competitive market, high renovation costs, and fickle landlords.
“It’s challenging to predict,” said Carri W. Chan, the faculty director of the health care and pharmaceutical management program at the Columbia Business School.
Of course, many health care providers still choose to remain on hospital campuses and in medical office buildings, and some — eyeglass stores with optometrists on staff, for example — have long occupied retail settings.
However, the number of urgent care centres has increased over the past 20 years to expand the range of places consumers can go for medical attention. Such “doc-in-the-box” facilities — which fill the gap between a visit to a primary care physician and one to a hospital emergency room — tend to be near where people live and shop. They are easily integrated with the community thanks to their branding and signage that is retail-style.
Some supermarket chains and pharmacies have also started adding walk-in clinics to allow customers to get a flu shot, strep test, or pick up prescriptions or groceries. Such retail clinics are typically staffed with physician assistants or nurse practitioners (hence the nickname “nurse-in-a-box”). CVS, for example, opened its first clinics in 2005 and now has over 1,100.
But now a range of providers — offering services like cosmetic dermatology, dental care, physical therapy and senior wellness — are seeking retail real estate. They are opening in street-level retail spaces and empty department stores. While people may be hesitant about visiting the hospital because of coronavirus outbreaks, they are seeking medical attention in alternative places.
“Being able to go into a retail environment closer to home, a smaller facility, felt safer and more convenient and also felt newer and cleaner,” said Matthew A. Coursen, an executive managing director at JLL, a commercial real estate services company.
Tend, a boutique dentist chain, has been opening dental offices in urban areas where rents can drop to 20% below the preandemic level. The company selects real estate in much the same way a retailer does — figuring out foot traffic patterns, demographic data and transportation options.
Tend picks a site and begins to install furnishings and finishes in that space. Even the wallpaper with swirly green and white to evoke mouthwash, Tend will match them. Andy Grover, co-founder and chief development officer of Tend, stated that the company spends between $1.1million and $1.6million on each office. The company operates in four major metropolitan areas.
Landlords affected by the pandemic’s store closures will find it attractive to sign long-term leases with well-funded health providers.
“As the landlord thinks about what will happen if we ever go through a crisis again, they want things that won’t close — grocery stores, pharmacies and medical facilities,” said Ms. Scardina of Cushman & Wakefield.
These dynamics are reflected in suburban malls, where providers of health care are moving into empty spaces left by retailers that closed or consolidated. Malls are appealing to providers because they are convenient for residents, easy to access and offer plenty of parking. Another plus is the open floor plates of old big-box stores.
A survey by ICSC, a trade association representing owners of such properties, found that nearly seven in ten Americans visited a health care provider in a shopping centre, enclosed mall or strip center in early 2020.
Ellen Dunham-Jones from Georgia Tech, who has been following the retrofitting of ailing malls, stated that 32 enclosed malls in the country have health-care providers taking up large areas or even the entire property. Some providers are expanding university health systems.
The University of Rochester in upstate New York is creating a $227 million, 350,000-square-foot ambulatory orthopedic facility at The Marketplace Mall in Henrietta, four miles from the university’s campus. Built in 1982, the property had four anchor tenants. However, one of them, a Sears shop, was forced to close in 2019. The overall vacancy rate had risen to 30 percent before the project began, said Jonathan L. Dower, vice president of leasing for Wilmorite, the mall’s owner.
Wilmorite demolished the Sears store as well as an adjacent section of the mall to make way for the project. The university, with the support of Perkins&Will architecture firm, is converting Sears to an outpatient surgery center where patients will have the opportunity to receive knee or hip replacements. The adjacent space will offer physical therapies.
Scott Hansche, a principal at SLAM, stated that repurposing existing structures is more cost-effective than starting from scratch. Reusing old structures is also environmentally beneficial.
Conversions are challenging because they require natural light to be added to spaces that are almost completely enclosed.
One Medical, a membership-based primary care chain with about 125 locations, has been expanding into outdoor shopping centers rather than enclosed malls, said James Goldberg, the chain’s vice president of real estate and development. The company recently opened a branch in a former Chico’s near the Banana Republic and the Pottery Barn at Westfield UTC in San Diego, Calif.
“Landlords are becoming understanding about what tenants we want to be next to,” Mr. Goldberg said.
As they build new properties, some landlords are now thinking about health care tenants.
“I do go after them now,” said Dotan Zuckerman, a consultant who handles retail leasing for ground-up mixed-use developments in the Southeast. “In a lot of these big projects, there’s only so much food and beverage you can do.”
