In terms of the benefits for both customers and medical providers, customers get a more convenient location for a variety of healthcare services and medical providers benefit from a well-trafficked center with higher visibility and the potential for more clients. But even with these benefits, a few challenges remain. Below, we have outlined several issues and opportunities medical tenants and landlords may encounter when doing these types of deals.
Medical providers can add to the tenant mix of a center, bringing more people to shop or visit other retail tenants. They also offer convenience to the neighborhoods they serve. As more retail space becomes available, more medical providers will seek to lease in retail centers. Health care spending per capita has been going up for years, and with an aging Baby Boomer population, more services and service providers will be necessary. Additionally, medical tenants can provide complementary and multiple patronage opportunities for other retailers or restaurants in the center. This helps create synergy, lasting tenancy, and establishes convenience and services for consumers.
Synergy Among Medical Tenants
Medical providers encompass a variety of services such as doctors, dentists, ophthalmologists, physical therapists, diagnostic centers, urgent-care and clinics. Hospital networks have also identified the benefits of moving services out of the hospital and closer to patients in the neighborhood. And even though all the providers fall within the broader healthcare sector, many can benefit by leasing space in the same center with complimentary medical service providers. Additionally, medical tenants may offer good co-tenancy with more traditional wellness-related tenants, such as gyms, fitness studios, massage therapists, and even holistic grocery stores or markets.
One of the most important things commercial retail brokers and landlords should confirm before leasing to a medical provider is whether the center is zoned for medical use. Because some medical providers will generate medical or hazardous waste, confirming what is allowed prior to selecting a space is imperative as zoning changes may be both costly and time-consuming.
Parking needs are another factor that should be considered. Medical tenants want the retail location for ease of access for their clients. If the retail center is home to one or two big box stores or is heavily populated, parking can be an issue for those looking for convenience. The landlord should consider offering some dedicated parking spaces to the medical tenant to alleviate these concerns. Alternatively, medical providers themselves can drive parking issues dependent upon the nature of the practice. The landlord should be cognizant of the other tenants and how they will be impacted, especially if the center has several quick-stop tenants, such as Starbucks, a fitness center, or dry cleaner. Add in a pediatric care provider and it could be a very busy center!
Buildout Cost Considerations
Medical buildouts can be more expensive than general retail buildouts, as with any specialty retailer, buildout is specific in nature to the operation of the tenant’s business. The length of lease and tenure of the business should be considered as costs can be extensive on both buildout and restoring existing spaces. Depending on the medical use, if they will be operating x-ray machines or other types of scans or tests, they may need more power than a typical retail tenant. Additionally, this equipment may need special consideration in the buildout due to radiation concerns. Landlords may also have to adjust their allowance for tenant improvements, as retrofitting a former retail or restaurant space, will most likely require significant remodeling of the space or a total tear-out of the interior to correctly design it. HVAC systems are another concern, especially during COVID-19, as medical providers may see patients with infectious diseases. Air circulation within the space will be a concern for the safety of the employees and the clients they treat. The trade-off on higher tenant improvement allowances is that medical tenants tend to sign long-term leases and are less likely to relocate. Because of this, the landlord may have to compromise from a typical retail lease that may give them the right to move a tenant within a center. Medical providers are much more difficult to move and may require assurances from the landlord that they will not be subject to moves within the center.