New types of health and wellness tenants fueled retail leasing activity
As the healthcare industry develops, more and more health and wellness providers are choosing to move to retail centers. These “MedTel” tenants are driving a lot of retail leasing activity right now, creating a supply-demand imbalance in highly visible centers and allowing retail real estate owners to generate higher rental rates, especially at end caps. and to outparcel.
As Americans pay more attention to preventive health care, providers are no longer focusing on treating patients not only when they are sick, but also on keeping them healthy. This increasing emphasis on prevention and wellness has led to a wide range of tenants who find the retail environment particularly attractive.
“Medtel tenants are really flourishing today,” says Ryan Ashe, project director at Westar, owner, developer and manager of the Phoenix-based shopping center that has a total portfolio of 30 million square feet. ft. throughout the western states. “We are seeing a lot of interest from the combination of national brands and private operators have expressed interest in moving to our centres. We have been cutting a lot of deals in the last 18 months.”
Consider Westar’s Queen Creek Marketplace in suburban Phoenix: 900,000-square-feet. The regional strength center is home to several Medtel tenants, including Alliance Urgent Care, Pacific Dental, The Joint Chiropractic, Prime IV Hydration & Wellness and America’s Best Contact.
Similarly, another WeStar property located in suburban Phoenix—Crossroads town center—has several Medtel tenants, including a primary care practice, East Valley Family Health, Crossroads Dental, and a new wellness concept called CryoShift Cryotherapy.
“We’re fans of medals,” Ashe says. “We think this is a great complementary use for our centers. As retail has changed and become a lot more dynamic over the years, we have seen that the combination of different uses creates an environment where all tenants thrive.”
More than urgent care centers and dentists
Although Medtel is not a new concept, it is one that continues to evolve and expand. While urgent care providers, dental clinics and vision centers were the first to realize the value of retail settings, other health and wellness providers are now seeking retail space. And with many retail and restaurant tenants closing due to the pandemic, Medtel tenants have the opportunity to lease retail space that was previously not available to them.
“They’re looking for high-visibility, high-traffic shopping centers rather than medical facilities,” says Ashley Casey, senior director of national accounts for Cincinnati-based Philips Edison & Company (PECO). With a portfolio of around 290 shopping centers in the country, which covers approximately 30.4 million sq. ft. in 31 states.
Casey says the full range of health and wellness is expanding to include more than just the use of traditional medicine, dentistry and vision. For example, alternative medicine and health care such as therapeutic massage, chiropractic medicine and acupuncture are increasingly MedTel uses. Similarly, many cryotherapy operators and physical therapy operators have a notable preference for retail locations.
For example, PECO’s 2020 redevelopment of Murphy Marketplace in a far northern suburb of Dallas attracted several Medtel tenants, including Restore Hyperwellness, America’s Best, Result Physiotherapy and Total Men’s Primary Care. Casey says new Medtel tenants choose high-visibility, easy-access locations and join existing Medtel tenants Sinai Urgent Care, My IDR, Monarch Dental and Dental One.
Cosmetic wellness—clinics focused on skin and body treatments that require the supervision of a licensed physician—is also expanding at a rapid pace.
Positive contributor to shopping center
Most retail real estate owners and developers consider Medallions to be more attractive than restaurants and service-oriented businesses such as dry cleaners and nail salons. “Owners are viewing Medtel tenants a little more favorably because they’re mostly Internet-proof,” says Joe Miller, managing director and head of retail at JLL Valuation Advisory.
They just aren’t internet-proof either. They are also “sticky” tenants.
“Medtel tenants sign long-term leases because they have to invest a lot of money to get established in the space, and they need time to establish their presence within a community,” says Casey. “That makes them attractive to owners and any other investors.”
In addition to serving as a separate tenant to a centre, Medtel generates foot traffic and cross shopping. Many MedTel uses have tenant synergies with traditional retailers, says Brian Finnegan, executive vice president and chief revenue officer at Brixmore Property Group. “For example, the wellness aspects of chiropractic, massage and acupuncture complement some of the athletic wear that a garment operator may want to sell,” he notes.
Traditional retailer ready to medal
Historically, traditional retail tenants have been less than welcoming to Medtel tenants. Traditional retailers, especially those that acted as center anchors, did not find enough evidence to suggest that the center would benefit from Medtel tenants.
It is therefore common for older anchor leases and national tenant leases to include restricted use clauses that restrict medical-oriented tenants. In fact, this is one of the biggest challenges that owners and landlords face while leasing space to a Medtel tenant.
“We are going to go through all these heritage national tenant leases and see if we are able to really take users into account,” notes Ashe.
Traditional retail tenants are primarily concerned about two things: parking and cross shopping. There is a misconception that medical tenants are parking hogs and do not have the potential to generate cross shopping revenue like traditional retailers.
“The good news is I think a lot of national tenants who have these restrictive-use clauses are warming to the idea that Medtel has an overall positive impact on the center and are giving landlords discounts so that we Supporters can lease Medtel,” says Aish.
According to JLL’s Miller, some municipalities are resistant to tenants leasing retail space to owners and developers. “I’ve seen municipalities push back on Medtel because they can’t run the same sales tax as a retailer,” he says.
willing to pay for visibility
In the past, retail real estate owners and investors were not on the same page with health-focused renters when it came to rental rates. Often, healthcare operators, whether they are primary care physicians or orthodontists, were a bit shocked when they initially explored the idea of leasing space in a shopping center.
Rather than viewing the increased fares as a tradeoff for greater visibility and the opportunity to expand their customer base and make it more flexible, these operators focused on occupancy cost.
Ash acknowledged that health and wellness tenants pay a premium for retail space compared to most traditional medical office buildings. “But I think med tenants are recognizing that the benefits are worth the extra cost,” he says.
Like many traditional retail and restaurant tenants, today’s Medtel tenants want to endcap and outparse. According to Brixmore’s Finnegan, this supply-demand imbalance is creating an environment for competitive leasing.
In the REIT’s shopping center portfolio, Medtel tenants are among those who pay higher rents, Finnegan says. “We have seen great demand for high-profile locations with a lot of visibility, and health and wellness tenants willing to pay aggressive rents to secure the locations they want.”
Landlords who generate a portion of their revenue through percentage sales also give up that income when they lease for pure medical use (such as urgent care, dental clinics and vision centers). However, most landlords can make up the difference by signing leases with medallion tenants at higher rental rates. In addition, many Medallion tenants have a higher quality credit profile than local or regional retailers and restaurant owners, and are therefore considered less at risk.
“Medtel tenants can provide a lot of upside for landlords,” Miller says.
