Medtail is just what the doctor – and developer – ordered

By Rick Chang, SVP, Commercial Real Estate, Stephen Gottesman, VP, Commercal Real Estate

Can a medical practice thrive in a retail shopping environment?

Retail properties have long been where consumers go to buy clothing, have a meal or pick up a quart of milk – but to have a medical checkup or get hearing loss treatments as well? Across the country and the Chicagoland area, medical practices are increasingly locating in retail environments, rather than traditional office buildings or on hospital campuses. Known as “medtail,” the concept benefits developers and managers of retail properties, as well as medical professionals and consumers.

Leasing office space on a hospital campus is expensive, especially as hospital consolidation continues. At the same time, larger medical practices are acquiring smaller ones, which means expanding offices need more space. Many of those practices – particularly those specializing in areas such as women’s health, dermatology, chiropractic and weight management – are finding retail shopping centers to be ideal locations.

Developers, in turn, are allocating a percentage of their space to prospective medtail tenants as they watch retailers scale back physical storefronts, lay off employees, reduce inventory and expand their e-commerce operations.

The medtail trend began years ago, and there are still many opportunities for developers that understand this area of commercial real estate.

Medtail offers advantages, but poses challenges, too

  • It diversifies retail developers’ portfolios beyond stores and restaurants. Many medtail tenants also finish spaces at their own expense, which saves developers from having to earmark space to suit the widely varying needs of medical practices.
  • Leases tend to be longer. Medtail tenants stay longer to reap the return on investment in extensive medical office build-outs and also want to maintain an established practice in the community.
  • Medtail balances and augments traffic flow. Their customers usually visit in early to mid-afternoon on weekdays, using the parking lot and other facilities at that time. Traditional retailers see peak consumer use after the workday ends and on weekends. Medtail traffic can boost business for stores as well, which supports current retailers and can attract new ones.
  • Medical tenants like retail centers. They are closer to where their patients work and shop, and to the pharmacies where they obtain their prescriptions and medical supplies. Traffic to neighboring stores and prominent signage also increase consumer awareness of medtail services.
  • Some practices are perfect for retail, but others are not. The best candidates are outpatient, not surgical, facilities. They serve routine and repeated medical needs, such as dialysis centers and practices that offer immediate or urgent care, physical therapy, pain management, orthodontics and optometry.
  • Medtail is affecting build-out trends. Medical practices like the ability to customize retail space. They also require more electronic doorways and elevators. Their large-scale medical equipment influences doorway width and also requires more extensive temperature control and wiring placement.
  • Medical groups know retail’s cost advantages. Storefront space is less expensive than hospital space. Larger medical groups have a negotiation advantage. Their stronger credit makes them less risky tenants, so they qualify for lower rental rates.

Medtail’s future

Medtail offers accessible and specialized medical services that a growing segment of the population will need, especially as Affordable Care Act requirements make 30 million more Americans eligible for healthcare by mid-2017, according to the Congressional Budget Office. What’s more, the baby boomer generation, which spans a 16-year period, is passing the 65-year-old mark – a solid market for medical services. These factors make building owners, managers and developers optimistic about medtail. It’s a win-win to fill space and draw new customers and patients. 

Chicago-area Medtail