Medical Practices Consider Larger Retail Pads

IRVINE, CA-Consolidation is the keyword for medical practices today as they search for operating efficiencies. Since healthcare is moving away from the hospital setting into more of a retail environment, this consolidation presents challenges for larger medical practices seeking space to accommodate their needs.

One solution has been for larger groups to lease retail space that formerly held sizable stores such as Barnes & Noble, Sonya Dopp-Grech, SVP/director of healthcare services for NAI Capital here, tells GlobeSt.com. As GlobeSt.com reported earlier this week, as healthcare moves 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, according to Dopp-Grech.

“Consolidation is occurring because health systems want to make everything efficient for the groups,” says Dopp-Grech. “Smaller groups won't be able to survive with malpractice insurance [and other costs]. So they're consolidating and going into larger retail buildings, such as a Barnes & Noble that got vacated.”

Uses such as urgent-care centers can fit into retail space that's roughly 4,000-6,000 square feet, but consolidating practices could need space in the 25,000-square-foot range, particularly if they are multispecialty groups. “The biggest issue with medical real estate is the parking,” says Dopp-Grech. “They can't go into a typical office-type setting or an R&D building unless more parking is available. If we had more land available or spaces that could be rehabbed closer to hospitals, that would be another story.”

As it stands, urgent-care centers are popping up in neighborhood centers since patients find them more conveniently located and offer better hours than a typical general practitioner, she adds. “They're trying to keep people from going to an emergency room because that's expensive. So they'll just walk into an urgent care and get referred if they need to go to a specialist or hospital.”

Dopp-Grech says as practices merge and form partnerships, they are looking at investing more into their buildings and growing their consolidations into larger spaces, which is good news for the healthcare real estate sector. “When larger groups go into a clinic with multispecialty, they want to have their own pharmacy and lab.”

She says the feeling in the sector is one of cautious optimism as the aftermath of healthcare reform rolls out. “All indicators say that the most movement will be in the second and third quarters of 2014. Everythiing will start settling down in the first quarter, and then in the second and third quarters they will start putting their plan more into action. A lot of the groups have been waiting to see what really happens and how it turns out. They'll take the first quarter to get things a little more on track, and then we'll be seeing more movement.”

The larger groups that Dopp-Grech has done deals with have been in medical-office buildings with large chunks of separately owned pads. “It's integrating a different type of use when going into a retail center. It's more convenient for patients in most cases than a typical high-rise—not like a typical MOB. You just park and walk in.”