OC Shopping Centers Embrace Medical Tenants

The Village at Nellie Gail Ranch is an 88,486-square-foot center anchored by Smart & Final Extra in Aliso Viejo, California. Vintage Real Estate renovated the center before Retail Opportunity Investment Corporation (ROIC) acquired it for $46 million this past December. The Village at Nellie Gail Ranch is an 88,486-square-foot center anchored by Smart & Final Extra in Aliso Viejo, California. Vintage Real Estate renovated the center before Retail Opportunity Investment Corporation (ROIC) acquired it for $46 million this past December.

Ease, convenience and experience are the goals of most shopping centers nowadays — with ease and convenience being a large part of a consumer’s overall experience. While these factors motivate some shoppers to make their purchases on a screen, these same goals are causing retail landlords to embrace healthcare tenants. 

“The retail environment is attractive to healthcare tenants because many of these tenants are interested in being located within the community,” says Dana Nialis, senior associate with CBRE’s healthcare services. “Doctors and medical groups are looking to expand beyond the hospital and are interested in locations that are more accessible for their patients.”

A Good Fit For All

E-commerce, national retail chains with large amounts of debt, and over-retailing in many areas has left landlords with a few vacancies. Options to fill spaces include finding a like-minded tenant to backfill the space, utilizing this time to renovate the entire center, or invest in a service-based, internet-resistant concept like gyms, salons or medical facilities. 

While goods can be purchased on a variety of platforms, healthcare generally requires face-to-face interaction. Video-conferencing and the use of email and text may provide an additional level of ease and convenience to patients, but a broken arm cannot be set virtually. A fact that many retail landlords are starting to appreciate. 

“Medicine is a space in which many people may be slower to adapt to the technology-based format, as most people still want to go see their physician in person because that’s where they’re comfortable,” Nialis explains. “The need for medical brick-and-mortar locations in the near future won’t change, as many specialties can’t function purely electronically.”

Hospital systems are also realizing their patients already live, work and play in and around these centers, whereas medical facilities tend to be clustered in less centralized locations. This trend is particularly visible in Orange County where healthcare operators are absorbing a range of retail space. One of these notable operators is Hoag Health, which has made a home at Mesa-North Shopping Center in Costa Mesa. The operator leased 18,600 square feet for a health center and 3,000 square feet for an urgent care facility. 

In Aliso Viejo, Memorial Care maintains a 9,400-square-foot space at the Village at Nellie Gail Ranch. The 88,486-square-foot center is anchored by Smart & Final Extra and contains a variety of services, including CycleBar, the W Salon, Zen Nails Spa, and Banfield Pet Hospital, as well as MOD Pizza and Chuck E. Cheese’s, among others. Vintage Real Estate renovated the center before Retail Opportunity Investment Corporation (ROIC) acquired it for $46 million this past December. 

“The Village at Nellie Gail Ranch was a unique opportunity for ROIC to acquire a rare coastal Orange County grocery-anchored asset located inside of a tightly controlled master-planned community," says Geoff Tranchina of JLL, who represented Vintage along with Dave Monahan and Cameron Pittman. "With the recent repositioning of the asset, we expect that performance will continue to improve as new tenants take occupancy."

Reinvestment can be a smart move for retail landlords looking for a fresh start. However, Nialis cautions that healthcare renovations can be pricey.

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Dana Nialis, senior associate with CBRE’s healthcare services.

“Healthcare tenant improvements are very expensive, and many retail developers may not be used to giving the types of tenant improvement allowances that healthcare deals require,” she says. “Owners will need to accommodate the costly build outs for healthcare spaces to make these deals and get these types of users into their projects. Additionally, there are many different codes that healthcare users must accommodate depending upon what types of specialties they have. These city and state requirements will need to be taken into account when doing deals.”

Healthcare tenants can also be taxing on the retail facilities management team. The Professional Retail Store Maintenance Association (PRSM) notes they may require additional security and security procedures, hazardous waste disposal management, enhanced or specialized lighting, increased energy usage, specialized equipment maintenance and repair, and cleaning supplies and procedures that meet specific legal requirements.

Still, even with all these needs, their loyal patients, internet-proof concepts and generally higher rents can make medicine a natural fit for shopping centers, today and into the future. 

“I think we’ll see an increasing number of healthcare organizations operating in non-traditional spaces, spaces off campus and outside of medical office buildings,” Nialis says. “That will likely be in retail centers. In the short-term, retail centers will definitely be a focus for healthcare tenants.”

— By Nellie Day, contributing writer. This article is part of the Retail Insight newsletter by Shopping Center Business, which includes a brief series of articles and videos surrounding some of the retail industry’s biggest gatherings, including ICSC Western Conference & Dealmaking. Some of the articles and the videos in the publication are created in conjunction with our content partners, which sponsor the newsletter. Click here to subscribe and to see archived newsletters.