The rise of retail medicine and what it means to CRE firms

Patients are seeking more care at freestanding medical facilities located outside of central hospital campuses.

Patients are seeking more care at freestanding medical facilities located outside of central hospital campuses.

by Dan Rafter

Debora Field has worked in the commercial real estate business for more than 35 years. She’s seen plenty of changes in the relationship between hospitals and medical providers during this time. Today, Field, vice president of sales and leasing for Kansas City-based Newmark Grubb Zimmer, says that the medical field is moving to a retail model, with a growing number of medical practices moving out into retail locations in the neighborhoods surrounding big hospitals. This trend, which is only gaining strength, means big changes to the services that commercial real estate firms need to provide to their medical clients.

Field recently spoke with Midwest Real Estate News about the changes hitting healthcare real estate.

Midwest Real Estate News: This is a broad question, but what are some of the most significant changes you are seeing in the way hospitals and medical providers serve patients today?
Debora Field: The first thing you have to do is look at the historical tendencies to understand what is different now. Historically, we have had seven- to 10-year cycles of medical practices either moving away from the hospitals they are affiliated with or moving back to the centralization model where medical providers are located on or near hospital campuses. It flip-flops. I have been in business for more than 35 years. I have seen it, and seen it all. And I have done a lot of deals. So I have seen this cycle play out many times.

MREN: It seems like today, patients want neighborhood locations where they can receive treatment for a variety of ailments. They don’t want to go to the big hospital if they can help it.

Debora Field

Debora Field

Field: The decentralization trend that we are seeing now really has been a result of the behavior of the hospitals. The hospitals have either wanted to treat medical practices as a tenant or as a partner. When hospitals want to treat medical practices like a partner and don’t charge them rents that are too high, the medical practice will generally want to be on the hospital campus. It is more convenient. And some practices, like OB/GYN, have to be near a hospital. Today, most practices are still tied to hospitals. The hospitals are still controlling them and buying them. And medical providers generally like being on the hospital campus or near it. It’s more convenient for them.

But today we are also seeing a certain number of medical practices and clinics moving out to the neighborhood level. That is the cycle we are now in. The trend today for hospitals is retail medicine, setting up clinics and emergency care centers throughout the neighborhoods they serve. The hospitals don’t want patients going to the big central hospital for routine acute illnesses. They want to handle the more serious problems at their central hospitals. But for most illnesses, they want the patients to stay near their homes, where medical providers can provide that care less expensively.

MREN: What kind of sites are medical providers looking for when they move out into neighborhoods?
Field: They are seeking box stores. They want to locate in the best spots in retail strip centers, the end-cap spaces. Some are even looking at pad sites that they can build on. They aren’t only re-using what is already there in developed neighborhoods. They are building new sites. They are trying to reach the population by coming to them. The goal is keep the patients from going as often to the hospitals, where care is so costly. Hospitals don’t want patients sitting in emergency rooms and taking up beds they don’t really need. Instead, they want customers going to the neighborhood clinic associated with the hospital.

MREN: What does this mean for the commercial real estate companies that work with healthcare providers?
Field: We have to search for a different kind of property for our healthcare clients, a new model. The clinic wants to go to a one-story, often freestanding building in a retail location. They want great parking. They want great signage.

MREN: Is it difficult to find these locations?
Field: No, not really. But you do have to spend some time searching. Every market is different in that regard. In our local market in Kansas City, we have already seen this trend toward retail medicine occur. It has been occurring for close to five years. Our market is healthier today. Our retail centers are healthier. That is good, but it does make it more of a challenge to find the right location for medical providers. The downturn in the economy offered lots of opportunities for medical clinic locations. Now, there isn’t as much. Are there a lot of vacancies that are suitable for medical providers today? There aren’t as many as there were when we had a softer market. But you can still find them.

MREN: When you talk about retail medicine, it makes me think of all the clinics that are now located inside drug stores like CVS/pharmacy and Walgreens. How does this trend impact the way commercial real estate companies work with healthcare providers?
Field: Just like banks infiltrated all the box stores, you are now seeing doctors and pharmacists inside all the big retailers. Because the healthcare system that you as a broker might represent now has different avenues to provide care – they don’t have to rely just on a pure office-space environment today – that does diminish the demand for the services we provide in a certain way. I can’t measure it. But still, hospitals and medical providers do need our services. When there these clients do have a real estate requirement, the requirement is often more retail in nature. Doctors and clinics always want good access and nice buildings for patients. I am doing deals now with medical practices that aren’t in medical office buildings but instead want good access in a nice office building because the parking is so much better equipped to handle their needs. That being said, we haven’t erased the old model. It still exists. We are still doing searches for typical medical office space for practices that need to expand or relocate. But the search has become more of a retail search. Medical providers are interested in what the demographics are, what the traffic counts in neighborhoods are. They want to know what kind of sign they can get.

MREN: You obviously work in a competitive field. How do you make sure that your clients keep coming back to you?
Field: You must offer your client a knowledge of what kind of space is conducive to retrofitting for medical if it hasn’t yet been medical. You have to understand air-quality issues, plumbing and structural issues. You have to understand access for patients and parking. You need to know what all those aspects are that go to defining a quality functional space for a medical tenant.

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