Healthcare Providers Move into Retail Spaces
With an aging population, there is an increasing need for more healthcare services nationally—and Phoenix, which has a significant retirement demographic—is aligning closely with the national trend. To house the growing healthcare facilities, providers are moving into retail centers, which are already within established communities and have parking and other functions needed to operate.
“Healthcare is one of the more stable sectors, and it is growing in Phoenix. There are 10,000 Americans every day that are turning 65 years old, and that is projected to continue for the next 20 years,” Mari Lederman, senior associate at JLL, tells GlobeSt.com. “The retirement population is very important in Arizona, and keeps growing. That increases the need for more effective space to locations to service those older adults. Inpatient facilities will be increasing to accommodate acute care needs, and hospitals are a big part of the healthcare delivery system.”
Retail space is a great fit for healthcare facilities, and Lederman says that 24-hour emergency care centers, urgent care, wellness and micro-hospitals are all popping up in retail centers. “We are seeing the demand to take healthcare more into the community, and operators are really looking at ways to make healthcare access more convenient for the patients,” she explains. “That is the number one priority for the providers and hospitals, and investors are seeing this sector grow. Outpatient visits have doubled in the last 20 years, and it is projected that ambulatory care will grow 5% annually. With the elderly population, being able to go someone close to home for healthcare makes the experience more comfortable.”
From the landlord perspective, there has been more hesitation to lease retail space to healthcare providers, because it is a different use. “There is a learning curve, but we are seeing more and more familiarity and owners getting comfortable with healthcare tenants,” Katie McIntyre, a senior associate at JLL, tells GlobeSt.com. “I think that most retail owners have the fundamentals in place in terms of parking, signage and ease of access, and that is really where this trend stemmed from.”
One particular challenge for landlords is getting used to a much higher tenant improvement budget. “Landlords do need to get used to providing a TI budget, which tend to be higher for healthcare than retail,” adds Lederman. “That has been a new pill for them to swallow and a new expense.”
Despite the gravitation toward retail spaces, the medical office vacancy rate in Phoenix is 17.6%, and off-campus vacancy rates have decreased to 14%. These numbers are slowly decreasing, and McIntyre expects this activity to continue through the end of the year. “We will continue to see strong absorption,” she explains. “In 2017, the year started slow, and by the end of the year, we absorbed 230,000 square feet. I think we will continue to see the same push toward the end of the year as well.”