3 Reasons Why Medtail is the Cure for Retail Vacancies

Medical retail, better known as “medtail,” is the rising trend of medical and wellness facilities to set up shop in retail locations. Although the category has been gaining popularity for several years (think VillageMD locations inside Walgreens), COVID-19 put a spotlight on the high-growth category.

There are three primary reasons why we’ll continue seeing highly sticky medtail concepts fill space adjacent to our favorite coffee shops, fitness centers, and grocery stores.

Convergence

Even before the pandemic, parallel trends aligned nicely: an ongoing uptick in retail vacancy and a desire among healthcare and wellness providers to practice in locations with more exposure, access, and parking.

And then the events of last year added fuel to the fire.

“In the United States, retail space was way overbuilt per capita going into 2020,” said Willie Hoag, principal at Tether Advisors. “We’ve been headed toward a reckoning at a slow pace, but it turned into a sprint during the pandemic. There were a lot of brands that were no longer relevant, and that reckoning couldn’t be kicked down the road anymore for them.”

At the same time, there’s an increasing awareness that we need to be healthier as a country. So all roads lead to innovative healthcare providers seeing the value of using retail space that’s already seamlessly interwoven into the traffic patterns of a busy patient’s day.

And professionals within the retail space agree. In a Tether Advisors study, 76 percent of commercial real estate (CRE), retail healthcare professionals, and private equity respondents believe COVID-19 positively impacted retail healthcare as an investment target.

“It’s exciting that a new group of players is filling former retail spots while providing access and convenience to consumers,” Hoag said. “Most importantly, the convergence could make us a healthier society.”

Convenience

From same-day Amazon shipments to food delivery to packaged meal services — convenience is king. And retail centers were designed with convenience in mind.

The Tether survey revealed that providers want to provide patient-friendly amenities, which is one of the benefits of being in a retail environment. When you have an appointment in a traditional medical facility, you’re a captive audience in a building that may very well be outside your regular orbit.

But when patients can schedule medical appointments in a place that’s part of their daily traffic pattern, then the efficiency is enormous.

As the COVID-19 situation unfolded, it seemed as if people with pre-existing conditions or chronic illnesses were the most vulnerable. That underscored the importance of preventive medicine and easier access to primary care — which medtail provides..

Sustainability

With brick-and-mortar retail struggling, landlords had to start making bets across their portfolios about which concepts would be sustainable coming out of the pandemic. They have to make educated guesses about which brands will finally plunge over the precipice they’ve been facing.

Some survivors are likely to be behemoths, such as TJ Maxx, Ross, and Burlington. Those discount chains have a model based on high-frequency in-person shopping with a limited online presence. But there’s been some question about what new concepts might come along to fill the void left by departing retailers and food outlets.

The decision many owners, investors, and landlords will have to make is whether or not they want to take a chance on what they might consider “upstart” medtail concepts.

“Medtail is sustainable,” Hoag said. “When one of these places makes it past the first 24 months in any location, the users typically aren’t going anywhere. A medical occupier does not leave a space unless they’re forced to.”

Even if a medical practice gets an excellent tenant allowance package out of a landlord, they often spend two and a half to three times more out of pocket to build out a space. And once the practice is established, there will be a habitual traffic pattern of patients who don’t want to deal with any changes.

“The groups we work with are only getting more creditworthy with a stable hand on the tiller and the innovators behind these concepts,” Hoag said. “That’s why a lot of money in the net lease investment community has flocked to medical. Because it’s a safe bet that, once a location stabilizes after a couple of years, then it’s sticking around for the long haul.”