There is a shortage of medical space and an increase in retail vacancies in southern California right now. So, why don’t medical tenants lease space in retail centers as compared to an office or medical building that they traditionally lease space in? Doesn’t this solve some of the problems for both types of spaces?
Some medical tenants such as optometrists, dentists, physical therapists, chiropractors, and a handful of others do lease space in retail centers. Why do they lease space in a retail center? Because they probably make more money when their businesses are in a quality retail center with good parking, signage, and retail visibility from shoppers at the retail center. The main criteria for any business is usually the bottom line so, if being in a retail center increases your net income, wouldn’t you want to be there? This is rule #1.
Sometimes the rent, improvements and other costs can be higher in a retail center, but not always. If you make enough additional income leasing at a retail center to offset this cost, then this objection isn’t a good one. Another objection might be that medical providers get more referrals from other medical providers that lease in the same medical building. This can also happen in a retail center if there are other medical providers there. They can still get referrals from outside the retail center from these medical providers that lease in the medical office buildings if they develop a relationship with them. It might not be the same, or potentially as many, referrals as the medical building scenario, but again, see rule #1 above. At which location are you making more net income? The referrals might not be the same as in the medical building scenario, but there might actually be more referrals in a retail setting because of the other retail tenants now referring you and the amount of potential customers a retail center has. This is especially true in comparison to a traditional medical building scenario which is much more limited in potential new customers finding you. Finally, it’s possible that some medical providers simply think their status will be somehow lowered by leasing space in a retail center and that a nice medical building is preferred by their patients. This might be true for some patients, but I would doubt most of them would care. If they are like me, they want their trip to the doctor to be the least painful as possible. Not to mention that a good retail center is much more fun than a boring medical building any day. I can see some types of medical users and their patients wanting it to be quieter than a retail setting, but again -doesn’t rule #1 above trump even that for most medical tenants?
Retail space in southern California is undergoing a change. The smaller to medium sized retail centers in particular are starting to become more restaurant/food and service focused as opposed to other types of retail uses. Customers at retail centers want to enjoy their experience and be able to do as much as they can at one location. So, with the foregoing in mind, wouldn’t many medical tenants fit in with this new retail trend of a retail landlord leasing to service providers like doctors and providing a better experience for the retail customer? I think so.
If you want to learn more about leasing, buying and/or selling any and all types of commercial spaces or if you have questions about any subject related to commercial real estate, please contact me at david@djmcre.com or 805-217-0791.