Just What the Doctor Ordered: New 'Medtail Tenants Filling Vacant Shopping Center Space

Changing Medical Economics Prompting Caregivers to Offer Services Where Patients Shop

Were seeing a lot of strip centers being converted to medical offices of various sizes, if a dollar store or grovery store goes out," Robert Moon, vice president, brokerage services, for Farmington Hills, MI-based Friedman Integrated Real Estate Solutions, tells CoStar News. "New MOBs can cost upwards of $200 a foot to development -- those are big numbers. Existing space at a retail center will be substantrially less than that, so theres a big incentive to take that space rather than building from the ground up."

Stores left vacant by the demise of big-box retailers and struggling strip centers are turning out to be reasonably priced options for many health care facilities which are increasingly moving away from the centralized service delivery model centered on a traditional hospital campus and trending toward mixed-use properties where medical office buildings (MOBs) and retail stores and restaurants co-exist, according to Laura Lee Garrett, a partner with Hirschler Fleischer in Richmond, VA, and member of the firms real estate and retail practice group.

One of the latest examples of that trend was last months announced joint venture between Cornerstone Development Partners and Stein Investment Group to develop a $65 million mixed-use complex on four parcels that include a blighted strip center property at Collier and Peachtree Road in Atlanta.

The Cornerstone Medical Center will consist of 145,000 square feet of medical office space across from Piedmont Hospital and 16,000 square feet of street level retail and restaurants. Chick-fil-A has already agreed to a lease on the ground floor of the seven story building slated to break ground this summer and be completed in 2015.

"The catalyst for this project was the medical community's current demand for efficient, 21st century medical space. There's very little medical office space left in the area immediately surrounding Piedmont Hospital," said Jason Linscott, principal at Stein Investment Group.

Retail properties increasingly are being repurposed for medical uses as providers look to move closer to patients and reduce costs by providing outpatient services in non-acute settings, said Colliers National Office Research Manager Andrea Cross, who authored the global brokerage firm's recent 2014 outlook for medical office space.

"High retail vacancy, particularly in the suburbs, due to overbuilding prior to the recession and housing crisis, and increasing online retail sales have created opportunities for health care tenants," Cross said.

Well-located big box properties in the 20,000-to-50,000 square-foot range with ample parking, such as those occupied by defunct tenants like Borders, Circuit City and Linens n Things, have been an especially popular draw for many medical tenants.

In one such project, construction will start this spring on a conversion project by St. John Health System to turn a 20,000-square-foot former Borders bookstore in Grosse Pointe, MI, into medical office and retail space. The medical office will occupy one end of a large building, which was also vacated by Ace Hardware.

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Just What the Doctor Ordered: New 'Medtail Tenants Filling Vacant Shopping Center Space