To fill empty retail space, landlords in US tap doctors and dentists

New York

THE next time you get your teeth cleaned or blood pressure checked, you may be doing so in a space once outfitted with face creams and frying pans.

Healthcare 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.

The pandemic has accelerated their embrace of retail space. Taking advantage of depressed rents, medical providers are opening facilities in storefronts on city streets and moving into malls and shopping centres in suburban and rural areas, sometimes occupying the hulking shells vacated by big-box and department 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 has been especially true for healthcare providers that brand themselves as so-called wellness companies, adopting the look and feel of consumer-oriented retailers.

"The retailisation of healthcare has really exploded," said Barrie Scardina, a retail expert for Cushman & Wakefield.

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The medtail concept has been gaining traction for some time. Today, about 20 per cent of leased medical space is in retail buildings, up from about 16 per cent in 2010, according to data from research firm CoStar Group.

But it remains to be seen whether healthcare tenants can put a meaningful dent in retail vacancies resulting from the rise of e-commerce, a swing that has been compounded by the pandemic. Healthcare startups face many hurdles, including a competitive environment, high renovation costs and fickle landlords.

"It's challenging to predict," said Carri W Chan, the faculty director of the healthcare and pharmaceutical management programme at the Columbia Business School.

Of course, many healthcare 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.

But the proliferation of urgent care centres over the past two decades has helped broaden the idea of where consumers can seek 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. Their retail-style signage and branding help them fit in.

At the same time, some pharmacy and supermarket chains have been adding walk-in clinics, enabling customers to get a flu shot or strep test while picking 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 instance, began opening clinics in its stores in 2005 and currently has more than 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 storefronts and vacated department stores at a time when people might be uneasy about going to the hospital, which has become associated with coronavirus outbreaks, but are obtaining medical attention in non-traditional places by getting Covid shots at convention centres and PCR tests on city sidewalks.

"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 dental chain, has been opening offices in retail space in urban areas, where rents can be 20 per cent below pre-pandemic levels. The company selects real estate in much the same way a retailer does - figuring out foot traffic patterns, demographic data and transportation options.

Once it picks a site, Tend rolls out furnishings and finishes in the new space that match its other locations, down to the swirly green and white wallpaper meant to evoke mouthwash.

The company spends between US$1.1 million and US$1.6 million on each office, said Andy Grover, a co-founder and the chief development officer of the company, which operates in four metropolitan areas.

For landlords hit by store closures during the pandemic, well-funded healthcare providers, which tend to sign long-term leases, are suddenly desirable.

"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 Scardina of Cushman & Wakefield.

Some of these dynamics are playing out in suburban malls, where healthcare providers are moving into spaces vacated when retailers consolidated or went out of business.

The providers consider malls attractive because they are familiar to residents, easy to get to and have ample parking. The open floor plates of former big-box stores are another plus.

By early 2020, nearly 7 in 10 adults in the US were visiting a healthcare provider in a shopping centre, enclosed mall or strip mall, according to a survey by ICSC, a trade group representing owners of such properties.

Thirty-two enclosed malls across the country have healthcare providers taking up substantial square footage or, in some cases, the entire property, said Ellen Dunham-Jones, a professor at Georgia Tech who has been tracking the retrofitting of ailing malls. Some of the providers are expanding university medical systems.

The University of Rochester in upstate New York is creating a US$227 million, 350,000 sq ft ambulatory orthopaedic facility at The Marketplace Mall in Henrietta, 6.4 km from the university's campus. The property, built in 1982, once had four anchor tenants, but one of them, a Sears store, closed in 2019. The overall vacancy rate had risen to 30 per cent before the project began, said Jonathan L Dower, vice-president of leasing for Wilmorite, the mall's owner.

Wilmorite gutted the Sears store and an adjacent portion of the mall to pave the way for the project. The university, aided by architecture firms SLAM and Perkins&Will, is converting the Sears space into an outpatient surgery centre, where patients will be able to get knee or hip replacements. The adjacent space will offer physical therapy.

Repurposing existing structures, rather than starting from scratch, reduces construction time and costs, said Scott Hansche, a principal of SLAM. It also is environmentally beneficial to salvage old structures.

The challenges of the conversions include adding natural light to spaces that may be almost entirely enclosed, as well as beefing up plumbing, power and HVAC (heating, ventilation and air conditioning) systems.

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.

"Landlords are becoming understanding about what tenants we want to be next to," Goldberg said.

Some landlords now have healthcare tenants in mind as they build new properties.

"I do go after them now," said Dotan Zuckerman, a consultant who handles retail leasing for ground-up mixed-use developments in the South-east. "In a lot of these big projects, there's only so much food and beverage you can do." NYTIMES