Vacant Retail and Healthcare Bring Up New Opportunities
December 6th, 2013 by Diane Moore
Economy experienced a retail boom in the past few years, which led to an abundance of retail stores. There was a rapid expansion of retail stores, and you could see several retail chains cropping up everywhere in the community.
However, these increased number of retail chain establishments are now facing changed consumer preferences. With the advent of e-commerce, the conventional retail sector is facing tough competition. Consumers prefer to shop through the convenience of online shopping, which is forcing many big box stores to close their operations.
There are many old big box stores that are sitting empty. However, there are many opportunities that are presented by these vacant retail spaces, which are making them favorite among many investors.
Commercial real estate is flooded with standalone buildings that were previously used as a bank branch, video store, restaurant, grocery store, etc. These vacant retail boxes are finding new life as many healthcare experts are advising to use them as medical centers or medical offices. There are professionals who are providing services that are used by many commercial real estate investors, for converting this vacant retail space into medical offices.
These offices are used both for physician practices and larger clinics. However, there are design and construction challenges that need to be tackled before a vacant retail space can adapt itself for medical use. Additionally, it’s important to make sure that the city allows such a thing.
Opportunities Provided by Vacant Retail Space
Healthcare sector is showing robust growth as demand for good quality, and easily accessible healthcare services are increasing among people. Therefore, vacant retail space and growing healthcare sector might seem two different stories, but to any intelligent investor these two trends have many common factors.
There are many healthcare professionals who agree that physical backbone of the healthcare sector needs improvement. One way that is suggested by some experts is to eliminate conventional office buildings with plenty of doctors, which is an inefficient way of providing healthcare. Instead doctors can be put in abandoned retail spaces as they have enough free at-grade parking. Hospitals can lease entire buildings and save plenty of costs usually associated with establishing a hospital.
Most of the vacant retail buildings are in the middle of the community. Therefore, these buildings are surrounded by other places that are regularly visited by people. The quality of these retail buildings makes them easily accessible to maximum people of the community, which is an important requirement of any healthcare office.
Additionally, experts believe that there are many elements of these vacant retail boxes, which make them appealing for clinics and physician practices. The original users of these vacant retail buildings were dependent on drive-by traffic, needed large signage, and required good access. Therefore, vacant retail is providing a great opportunity to the healthcare industry.
Significant Projects of Renovating Vacant Retail Space
There have been many uses of vacant retail space by healthcare professionals. Small places like a hamburger restaurant in Santa Cruz, California, was renovated into an urgent care facility. However, the adaptive reuse of these vacant buildings is not limited to small users, and large vacant retail spaces are attracting hospital systems that have requirements for large spaces. Some of the memorable projects of renovating vacant retail space are discussed below.
Dental care center
In Eastlake, Ohio a vacant bank building that was near a strip shopping center, was remade into a dental office. In the process of renovation, complete building was gutted, but the vault was left untouched, because it was expensive to remove the vault.
An open design concept was implemented for the dental bays, which were separated only by furniture. After the dental center was opened, nobody could see any traces of bank, except the remaining vault. This dental care center has hi-tech waiting room with internet access and TV, a water bar, private surgery suites and separate dental hygiene suites.
Ohio medical center
In Gahanna, Ohio a former grocery store was renovated into an Ohio State University Medical Center, which is based on the new concept of CarePoint. This former big grocery store that was vacant retail space has now been transformed into a single location that provides plenty of healthcare services.
People can avail services like family medicine, cardiovascular medicine, neurology, imaging, gynecology, physical therapy, orthopedics, sports medicine, rheumatology, and podiatry. This medical center is a classic example of how large vacant retail spaces can provide a great opportunity for opening healthcare services.
Cook Children’s healthcare system
In Fort Worth, Texas a former grocery store was adapted for medical use by Cook Children’s. This vacant grocery store was located five blocks from its main campus, and the building was given interior renovation and a completely new facade.
These changes made this former grocery store suitable to house home health division of the organization. A former grocery store is now an attractive medical office. The project has been highly successful, which has encouraged Cook Children to expand its healthcare system to adjacent retail building, which is another vacant retail store.
Challenges Involved in Adapting Vacant Retail Space for Healthcare
Although, commercial real estate is filled with many vacant retail stores, but the opportunity of transforming these stores into medical offices comes with certain challenges. There are some cities that don’t allow the former retail stores to be used for medical purposes.
Apart from this there are many other factors that investors must consider before investing in such project. Below is the due diligence process that an investor should follow before renovating a vacant retail space into a medical office space.
Commissioning of a zoning study is the first step because it determines whether there are any zoning issues that are involved with the change in use of property. A zoning report is an integral component of any business plan that is seeking to secure financing while acquiring a property. This report would advise about the requirements of the local area authorities.
Additionally, this report gives information about the federal and local parking requirements and use. If all the regulations are not confirmed by the property, then long term ownership of property and loan might get impacted. Therefore, there are many legal issues that are analyzed and researched by legal professionals when they are completing a zoning report.
ALTA survey: American Land Title Association Survey or ALTA survey is another important step in this process. When acquiring the property or taking it on lease, it’s important for the investor to get a complete ALTA survey. This survey would give a complete and detailed map of the land that is going to be acquired.
This survey would show existing improvements of the property, utilities and important observations in the insured property. ALTA survey would give details of the boundaries of that property as found by the surveyor. This survey might also indicate the potential future use of the property.
Property condition assessment
Taking a property condition report is important before renovating a vacant retail space. This report would help the investor decide realistic estimates about the amount of money that needed to be invested in the renovation of the property.
A property condition report would give physical condition details of the property, which are related to exterior of the property, interior structure, interior finishes and partition, floor, plumbing system, fire protection system, electrical system, HVAC, and roof.
According to experts, the biggest challenge faced during renovation is the mechanical systems like air conditioning and heating. Retail building generally have one HVAC system, and thus it’s not suitable for medical offices because it doesn’t allow to set different part of the building at different temperatures. Plumbing is another challenge that needs plenty of time and money. Most of the times installation of plumbing lines needs complete jack-hammering on the foundation of that building.
Phase I ESA: To identify the visible signs of releases of hazardous materials at the property, it’s important to get Phase I Environment Site Assessment (ESA). This assessment would also include the reviewing of past and current history of that property. This review would help in determining any problem with hazardous material.
Any acquisition of vacant retail space would require due diligence as mentioned above, especially if a major renovation is contemplated on that property. Additionally, it’s advisable to consult with engineers, architects, and energy efficiency experts. Consultations with these professionals would surely give a better understanding of the efforts that are required for the renovation of the property.
Communication is the key factor when dealing with consultants as they give better advice only when they understand what their client is trying to do on a business level.
Using Vacant Retail Space for Healthcare Is a Great Investment Opportunity
The opportunity available in transforming vacant retail space to healthcare center is attracting many investors to this business. Many investors of commercial real estate market are finding great value in this business opportunity due to several reasons:
Options in property acquisition
There are different options of acquiring the vacant retails space. Investors have the option to either buy the property or take it on lease. The final decision of the investor would depend on the long term plans and availability of funds.
For example, if an individual practitioner decides to open his clinic he might choose to take the vacant retail space on lease as it would minimize the startup costs of his clinic. Additionally, many investors buy these properties and lease it to other prospective clients, so that they can renovate the property to fulfil their business plans.
Low price of the property
As the retail sector is going through a slump, and there are many retailers who are closing their stores, it is effecting the overall price of these vacant buildings. With the increase in a number of vacant buildings their cost of acquisition is coming down.
This fact is making the transformation of vacant retail space into the medical office a highly profitable business opportunity. Low cost of acquisition means the setup costs for healthcare center would be less.
Growing healthcare sector
Robust growth in healthcare sector has made sure that the profits of opening a good quality healthcare center remains high. However, using the vacant retail space for that purpose makes sure that the initial startup costs are less and time needed of starting the medical office is also less.
These two factors are important and can improve the potential profits of any business. Therefore, investors are getting great value for their invested money when they are taking this business opportunity.
Average cost of renovation
Although, the cost of renovation would differ according to a particular property, but an investor can expect to incur some average costs. Interior transformation of a vacant retail space would need an investor to spend nearly $50 to $60 per square foot.
However, if the property needs both interior and exterior renovation than the average cost could go up to nearly $175 to $200 per square foot. All the amounts mentioned above doesn’t factor the acquisition cost of the vacant retail property. However, if the building needs plenty of renovations then, final average cost might be very different.
Commercial real estate market is already witnessing plenty of vacant retail big box spaces, and the trend shows that this volume is going to increase in the future. Therefore, finding new uses for vacant retail spaces is going to be a big challenge in the upcoming years. Government would surely step-up their efforts to encourage innovative uses of these vacant retail spaces. Therefore, the chance of governments encouraging use of vacant retail spaces for healthcare purposes is very high.
However, it’s important that developers need to show some creativity in completing these transformations. It’s important for the investors to do proper research before spending their money. After all the person who gets to determine the success of this business opportunity is not the investor nor the medical professional – but the consumer.
Latest posts by Diane Moore (see all)
- Tips for Making your Commercial Property more Energy-Efficient - January 22, 2014
- Remodeling Investments that Will Pay You Back - January 21, 2014
- 21 Reasons to Invest in the US Commercial Property Market - January 20, 2014