Retail – Just What the Doctor Ordered
Will the regional mall be reborn as the medical mall? In some cities, it already has.
With the universe of retail tenants contracting in both numbers and space needs, many shopping centers are turning to medical users as an RX for hard-to-lease vacancies.
We’ve all seen—if not visited—those ubiquitous “doc in the box” urgent-care clinics at the corner strip mall. But increasingly, a whole host of other medical uses, including dental offices, physical-therapy clinics, blood-testing labs and imaging centers, are setting up shop in spaces of all kinds, from neighborhood centers to power centers to traditional malls.
Not only does this strategy fill vacancies and create more convenience for healthcare consumers, it gives medical providers a billboard-like branding opportunity, plus significantly smaller occupancy costs than building a new office—no minor consideration in these times of exploding healthcare costs. Moreover, a well-located, highly visible shopping center on a busy thoroughfare offers medical businesses far more provider recognition than a simple name on a fifth-floor office door.
Because medical businesses remain in an expansion mode, thanks largely to the advancing healthcare needs of Baby Boomers, tenant-recruitment opportunities in that field seem boundless.
Some retail centers that were left for dead have even been fully revived by medical uses, including Nashville’s 100 Oaks Mall. Situated on I-65 just south of downtown, 100 Oaks suffered low occupancies for years and was even written off as a loss in a profile on Deadmalls.com. The top floor of the two-level center, which was completed in 1968 as the city’s first enclosed mall, sat persistently vacant, as did the brunt of an attached five-story office building. But an extensive renovation in 2008 transformed the second floor and adjacent office building into medical clinics and offices operated by Vanderbilt University Medical Center, which went on to sign a 12-year lease at the center. The mall’s bottom floor remains open for retail with such big-name anchors as Burlington Coat Factory, Ross Dress For Less, PetSmart and Regal Cinemas Hollywood 27, as well as a food court. When patients sign in at the mall’s Vanderbilt clinics, they receive pagers like those doled out to waiting patrons at busy restaurants, and are free to patronize the shops and eateries until buzzed.
Another center in Mississippi, built originally as Jackson Mall in 1969, was reborn as Jackson Medical Mall after its retail component fell on hard times in the 1980’s. A local physician, Dr. Aaron Shirley, teamed with the University of Mississippi Medical Center in 1995 to develop an ambulatory health-care complex there, probably saving the place from the wrecking ball. Two other colleges, Jackson State University and Tougaloo College, later joined the partners there to create additional clinics and medical-education opportunities.
Putting a medical use into a retail center vacancy may sound like an easy real estate play, but there can be several caveats and complexities to mitigate:
* Retail developers and leasing agents speak one language, and the medical community speaks another. It can be a challenge to bridge that gap. For that reason, landlords usually prefer to lease to a medical firm rather than an independent physician. By nature, doctors are typically not business people and they may not be “on call” when you need to reach them or can be a challenge to deal with when you do—particularly on the real estate side. Medical businesses owned by a larger corporate entity, on the other hand, typically have a go to decision-maker, such as a vice president of real estate, who is more accessible.
* Medical tenants often request prime visibility in centers, while landlords may prefer to place them off the beaten path. Healthcare providers are also very image-conscious and may not want to locate next to lower-rent tenants.
* Tenant-improvement costs are often higher for medical tenants than retailers. A dental practice finish-out can easily exceed $100 per square foot, while a surgery center can exceed $200 per square foot. What’s more, a space that’s been reworked for medical uses can be difficult to convert back to retail space.
* Not all medical businesses are desirable. Treatment-intensive operations, such as oncology centers and dialysis centers, may be considered a drag on a center by other tenants and center patrons.
There are more pluses than minuses, however. While most cities require a minimum number of parking spaces for retailers, sometimes based on maximum patronage, medical providers will typically need fewer. For example, a small primary-care provider occupying 1,500 square feet will need at least seven spaces if it sees three to four patients per hour and has two employees, plus the physician. Larger operations will need more spaces for patients.
Whatever the arrangement, parking at a one-floor retail center will almost always be less taxing than parking at a high-rise office building in a medical district, particularly for aging patients. Similarly, many people prefer to patronize caregivers in a strip center closer to home—especially if it is on a commuting or errand-running route—rather than driving to a more remote medical district or office complex. Medical businesses also tend to draw patrons to centers during off-peak weekday hours—a big plus for co-tenants.
Locations in retail centers situated near major hospitals and medical districts can be particularly opportunistic for doctors, who enjoy the ability to refer patients to close-by facilities. Moreover, the ample vacancies in larger power centers these days provide an opportunity for complementary medical businesses to cluster there.
While there’s obviously more than meets the eye to ushering medical tenants into traditional retail spaces, it may be just the prescription for what ails many centers in these challenging real estate times. SCB
Jeff Green is president of Mill Valley, California-based Jeff Green Partners. He can be reached via e-mail at email@example.com.