Get the latest on why many practices are locating to retail locations.
Driven by patient preferences, growth in healthcare visits, and an availability of retail space, healthcare clinics can increasingly be found in strip malls, shopping malls and neighborhood retail centers. Medical tenants comprised 2 percent of retail real estate in 2015, but providers in certain markets account for as much as 40 percent of new retail real estate transactions today, according to Jones Lang LaSalle.
“Medtail”—the trend of medical offices leasing space in retail centers—is catching fire. Healthcare providers from family practices to chiropractors to immediate care centers are locating in neighborhood and community retail centers to be closer to their patients’ homes and offices. They’re targeting everyone from cost-conscious Millennials to Baby Boomers who spend a large part of their income on medical care due to age-related health concerns.
Providers Focus on Clinic Location and Layout
Providers know plenty of patients need treatment, because 85 percent of Americans visited a doctor and 62 percent visited a dentist in 2014, according to the Centers for Disease Control. They can often find it at medical offices ranging from 8,000 square foot urgent care centers to 75,000 to 150,000 square foot multi-specialty centers. These sizes fit nicely in shopping malls that can be as large as 1 million square feet. Healthcare clinics require four parking spaces per 1,000 square feet of operating space, so it’s not difficult for patients to find parking spots at mall locations, particularly because their appointments tend to be between 9 a.m. and 5 p.m. when few shoppers are present.
Some medical clinics lease space in former “big box” stores, rather than in shopping malls, strip malls or walkable urban retail centers. St. John Providence opened a 20,000-square-foot medical complex complete with lab, imaging and physical therapy services in a one-time Borders bookstore in Grosse Pointe, Michigan. Facilities that offer affordable care at conveniently located, highly visible, highly trafficked retail centers, allow providers to grow their brand and extend their market share.
There are other advantages for providers too. At their new retail locations, medical clinics often select modern designs that can accommodate larger medical groups as the industry consolidates. They can also opt for extra square footage for digital imaging or minor surgery, flexible layouts for future technological advances, and large group rooms for acupuncture and yoga classes.
New Medtail facilities tend to include large, open spaces with multiple work stations, which promotes collaboration and interaction among teams of doctors, physicians assistants and nurse practitioners—and large waiting rooms with patient-friendly amenities such as fireplaces, easy chairs, and tea with honey. Harken Health opened four such Chicagoland offices this year, including one in an Uptown strip mall next to a mattress store, national pet food store and Mexican restaurant chain.
Convenience is Key to Consumers
To meet patient desires for convenience, medical clinics continue to move away from a centralized delivery model. Rather than add to hospital campuses and expand at medical complexes, providers are often leasing offices at a variety of retail spaces close to where consumers live, work and play. This is expected to continue. For example:
- Mayo Clinic opened a healthy living clinic in the Mall of America near Minneapolis.
- Northwestern Hospital placed a primary, specialty and immediate care clinic at a movie theater and restaurant complex in Evanston, Illinois.
- Vanderbilt University’s medical clinics took over the second floor of 100 Oaks Mall in Nashville.
- Maury Regional Cancer Center opened a treatment facility and pharmacy at a mall in Columbia, Tennessee.
- MedSpring opened urgent care clinics in the midst of urban boutiques, restaurants and grocery stores in Chicago’s Wicker Park and Lakeview neighborhoods.
From the 66 percent of young adults who don’t own cars and want accessibility, to the 41 percent of covered workers who have high deductibles (above $1,000) and seek affordability, to the 36 percent of adults age 65 or older who make between four and nine doctor visits per year and desire convenience, it’s clear medical clinics at retail centers target a wide range of consumers.
Medtail is Attractive to Investors
Investors are attracted to Medtail as well. They’ve already been investing in retail and medical centers, and this links both. Retail shopping centers typically are well-established and medical providers such as hospital chains, ambulatory care centers and physical therapy practices tend to have stable finances and good access to credit.
Healthcare clinics are quality tenants because they have solid patient followings and strong assets. They can preserve the viability of malls, which need anchors to survive. They can even revitalize the neighborhood, as a medical facility geared toward low-income patients did for a shopping mall in Jackson, Mississippi.
And retail landlords generally like having medical tenants, because they fill less desirable slots and make lease-up of other spots easier. They increase foot traffic at shopping malls, and are exempt from fickle shopping tastes. However, landlords may need to be flexible when it comes to renting to medical clinics, as some malls historically prohibit office space and prevent exclusive use. On the plus side, medical clients invest more, have low default rates and sign longer leases (typically 7 to 10 years).
As far as future development, commercial real estate is valued at 17 percent above pre-crash levels, but a 2015 retail vacancy rate of 9.6 percent indicates room for the stability that healthcare tenants can provide. Retail rents of $19 to $25 per square foot are affordable for medical clinics, who paid $24 per square foot for medical office building space according to Colliers‘ 2015 Medical Office Outlook Report.
The Future of Medtail
Healthcare clinics located in retail areas will continue to attract patients. Despite the growth of e-commerce, people still go shopping, plus doctor visits aren’t Amazon-able (yet), and there are synergies from placing medical offices close to sporting goods stores, vitamin shops and even shoe stores. Malls account for 20 percent of U.S. retail sales and publicly traded mall REITs (Real Estate Investment Trusts) are trading at $112 billion, per Green Street Advisors. Net operating income of mall REITS increased this year, according to the ICSC (International Council of Shopping Centers).
While medical offices continue to set up shop in retail centers, it is possible that demand may slow a bit. Banks tightened lending to commercial real estate in late 2015, and the Bipartisan Budget Act of 2015 began restricting medical care reimbursements for new off-campus medical properties as compared to those on an actual hospital campus. These actions could affect the pace of expansion.
But as more healthcare costs are shifted onto patients, and consumer preference drives a need for less expensive, more conveniently located clinics, Medtail is expected to stick around. Notwithstanding the growth in telemedicine, Medicare and health insurance companies typically require an in-person visit with a healthcare provider in order to cover costs associated with treating medical conditions. For all of these reasons, it is likely medical clinics will be built in retail centers for some time to come.