Is Medtail The Cure For What Ails Retail? That's The Prognosis In Florida, According To JLL

It's no secret that brick-and-mortar retail, already showing troubling long-term symptoms such as vacant storefronts, saw its condition worsen during the pandemic as consumers embraced e-commerce and shunned crowds. Meanwhile, healthcare providers continued to search for new ways to reach patients where they felt safe.

Fortunately, a remedy is at hand that potentially benefits healthcare consumers, retail property owners and care providers. Known as medtail, it dissolves some of the boundaries that have traditionally separated the medical and retail asset classes.

According to CoStar data, about 20% of leased medical space is located in retail buildings, which is a 20% increase from 2010. These medtail spaces can range from a small medical clinic at a local CVS — a pioneer in mixing healthcare and retail — to medical malls with multiple healthcare tenants.

"During Covid-19, many retailers were not utilizing their spaces as effectively as they once did or were vacating spaces," said Lucia Hedke, a JLL managing director who heads the firm’s healthcare services line in Florida. "That freed up additional space for healthcare users, which are generally considered a safe asset class."

The pandemic accelerated medtail adoption, but several long-term trends were already contributing to its growth prior to 2020. Justin Greider, a JLL senior vice president who leads its retail practice in Florida, said the blurring of lines between retail and medical asset classes first became noticeable during the Great Recession.

“There were massive amounts of vacant retail space during the recession, and many surviving retailers who had previously said they only wanted to be around other retailers began to warm up to the idea of parents bringing their kids to the doctor's office next door and then doing some shopping,” Greider said. “And a lot of shopping center owners saw that they were dealing with retailers who had financial and credit struggles, but it's hard to beat the credit and stability of a medical tenant.”

Other medtail catalysts included technological advancements that allow medical providers to overcome labor shortages and provide care in facilities that are conveniently located for patients but outside of a hospital environment. In addition, changes brought on by the Affordable Care Act of 2010 were hugely influential, Greider said.

“Prior to the act, an emergency room could only be located within a hospital, but regulations were changed and hospitals could now operate freestanding ERs,” he said. “For the first time, retail landlords were asking the question, ‘I have this grayed-out parcel in front of my shopping center. Am I going to put a McDonald's or Chick-fil-A there or an emergency room?’”

The medtail trend extends nationwide, but Hedke said it is especially pronounced in Florida and other Southeastern states, whose populations have boomed in recent decades with an influx of families, seniors and others, all of whom need convenient access to healthcare. The phasing out of Florida’s certificate of need program for most services is also welcome news for new providers looking to enter the specialty hospital space, she added.

Exempting general and specialty hospitals from the CON requirement removes a barrier to entry and creates new opportunities for providers that may now build new facilities or expand their services in any geographic area of Florida, Hedke said. In addition, existing hospital providers may engage in construction and renovation or expand their existing service offerings and bed counts without obtaining a need determination and additional regulatory oversight.

New medtail facilities tend to involve the conversions of existing retail properties and are generally seen when developers are having a hard time making new ground-up construction projects pencil out, Greider said. However, he added, Florida’s retail occupancy rate hovers around 97%, meaning that even existing spaces are a precious commodity in the state.

Nevertheless, innovative new medtail properties continue to rise in Florida. As an example, Hedke cited the Lake Nona Performance Club, a fitness, sports and integrated wellness facility that takes advantage of advances in fitness science and the increasingly porous boundary between medical and retail facilities.

“It's a large fitness center that was built with plans to add a medical office building with ground-floor retail and healthcare tenants,” she said. “The whole concept is meant to encourage people to live healthy lives.”

Whether a project is a ground-up building or a conversion of existing space, or whether it will house an ambulatory surgical center or medical offices, Hedke said JLL has a healthcare project management team that works with project owners to make certain the facility is suited for the unique needs of healthcare users. This can include considerations such as the ratio of spaces in the parking lot, ceiling heights to accommodate medical equipment or the installation of emergency power generators.

JLL also uses advanced technology such as Placer.ai to help determine the best locations for each specialty. This technology incorporates factors such as payor mix detail and demographics to identify the ideal site and identifies all competitors to ensure the market isn't oversaturated.

Greider added that in Florida’s highly competitive CRE environment, developers have a special incentive to pursue medtail projects. Simply put, lenders like them.

“I've had more developers reach out to me about incorporating healthcare users into their retail developments to satisfy lenders, who are scrutinizing everything today,” Greider said. “They ultimately may not lease to a healthcare tenant, but the lender wants to see that it is a possibility because they know healthcare is a safe asset class that tends to be very long-term and well capitalized.”

This article was produced in collaboration between JLL and Studio B. Bisnow news staff was not involved in the production of this content.

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