Willie Hoag on the spread of ‘medtail’
While the integration of medical users into our retail centers has seemed rather sudden, the logic is unassailable. Meshing self-care into the American’s everyday needs pattern is a necessary evolution, Scarce free time means convenience and efficiency are more crucial than ever. Any landlord now expects that when interviewing a prospective leasing broker on their concept to fill the 2,500-sq.-ft. square foot endcap or the white elephant vacant anchor or enclosed mall, the reply boils down to “probably a medical user.”
The now ubiquitous presence of “medtail” in retail centers is born from numerous factors. Firstly, the economic reality of an evolving healthcare system. At more than $10,000 the United States has the highest per capita spend for healthcare in the world. We’re an aging country with a volatile healthcare infrastructure that historically was reactionary, driving up costs further. The past decade has seen a greater emphasis on preventative wellness, a model that places value-based care to mitigate the expensive and stress of acute care. A leader in this approach is Oak Street Health, a primary care clinic for Medicare Advantage seniors. Over the past three years, our team has overseen their national expansion efforts, allowing us to see firsthand a model that occupies retail space in “healthcare deserts” employing community outreach and family accountability to reduce the potential of cataclysmic care.
The stakes are high for insurance companies and local hospital networks to keep their existing patient base within their networks, thus the impetus to allocate capital on smaller spoke clinics that specialize and create a perception of local or regional network dominance. Pediatric care or allergy and asthma clinics land next to your Whole Foods to address child wellness in one fell swoop. Meanwhile, privately backed medical start-ups have flourished to expose the inefficiencies of some of the large and cumbersome hospital networks. We consult with tenants as varied as PM Pediatrics, Aspen Dental, and ATI Physical Therapy, all expanding quickly to win over a captive audience that seeks familiarity and convenience uniquely fostered only by prominent retail space.
The demand and profit at stake have stirred an investment community that sees the empirical facts inherent to most medical tenants. There is limited turnover or relocations, usually long-term leases, and the upside potential of consolidation or buy-out opportunities from even stronger entities. As an example, a freestanding net-leased dialysis center provides a seemingly secure harbor due for real estate investors due to their inherent, albeit gloomy, necessity for the foreseeable future. ATI and Athletico have a clear runway for expansion as the varsity pitcher requires Tommy John surgery and the 65-year-old opts for the black diamond slopes instead of the rocking chair. The growth potential breeds a competitive landscape that requires the best real estate that seamlessly weaves into the narrow landscape of the market.
From the perspective of the medical tenant, the opportunity for high-profile space is abundant. Retail real estate, as opposed to the nondescript medical office buildings of yesteryear can immediately enhance branding and credibility. Not so long ago, many traditional retail tenants abhorred medical tenants because they required too much long-term parking. In reality, most medical tenants with whom we consult have less stringent parking demands than all but a few thriving retail categories. For example, the urgent care and microhospital models may require less than 30 patient visits per day to ensure success.
There remains reluctance from landlords and some anchors to allow healthcare users to locate proximately within centers. There’s been a marked shift in attitude, however: A center marked by vacancy is a grim alternative to a co-tenant that may not seem perfect. The depth and breadth of active tenants has winnowed considerably.
The future of medtail is expansive. Staffing and burnout from these highly specialized, well-educated professionals may impede the growth desires of many of these concepts. Telemedicine, like online shopping, may compete with some acute care practices for typical urgent care visits, but the mutually accretive benefit of brick and mortar retail space for medical use is clear.
In our retail climate, it is thus not a stretch to envision the “lifestyle center” of the near future as a one-stop health and wellness center with your fitness club adjacent to the pediatric dentist. Before you drop your pet off at the luxury vet (with lodging), Grandma is picked up from her senior living classes at Oak Street Health, efficiently addressing the health of our families, communities, nation.
Willie Hoag is a principal and director of tenant representation at Mid-America Real Estate Corporation, based in Chicago.