Retail Medical Build-Outs Can Be Costly

IRVINE, CA-As healthcare moves away from the hospital toward retail settings, many retail landlords are finding themselves for the first time involved in build-outs and tenant improvements for medical practices. While this trend is welcome among most landlords, they may not be prepared for the high cost of some of these improvements, says Sonya Dopp-Grech, SVP/director of healthcare services for NAI Capital here.

“In an attempt to lower costs driven by healthcare reform, a major trend in the healthcare real estate market is toward consolidation,” says Dopp-Grech. “It appears smaller practices are merging with larger groups and pursuing space in MOBs or retail centers for services previously being offered in a hospital setting. This change can lower the overall cost per square foot to provide many outpatient ambulatory services.”

Dopp-Grech adds that preventative care is a key component of healthcare reform, and it is estimated that 30 million newly insured patients will be added nationwide. “A focus on preventative care will help to hold down costs as the new patients are absorbed into the insurance system.”

The trend of medical users now looking to retail centers is a fairly new concept, but it makes sense, she says. “Retail listings typically meet parking requirements and can offer a more convenience location for patients to get in and out. These centers are also typically centrally located to patients in their communities.”

The most common type of care facility seen in retail listings is urgent-care centers, which typically range between 4,000 and 6,000 square feet. “One hurdle to keep in mind with this type of use going into a retail center is the extensive cost of tenant improvements typically ranging from $75-$150+ per square foot,” says Dopp-Grech. “Most retail landlords are not accustomed to this high dollar amount of tenant improvements, often requiring the medical tenant to contribute the majority of the cost to convert the space to medical and construct the required medical tenant improvements.”

She adds that from the standpoint of hospitals, opening outpatient centers in retail centers in the surrounding communities provides an opportunity to further promote the hospital brand and increase the patient base that ultimately feeds more business to the hospitals over time. “As the healthcare industry continues to experience double-digit growth, the one constant will be change in this industry, including how and where patient care is delivered.”

As GlobeSt.com reported last week, Accretive Realty Advisors Inc. has received final approval to begin construction on San Juan Medical Center, a two-story, 42,551-square-foot medical-office building at the northwest corner of Rancho Viejo Rd. and Golf Club Dr. in San Juan Capistrano. It will be the first exclusively medical class-A office building constructed in the town in the past 25 years.