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Retail Centers May Look to Medical Tenants to Capture Baby Boomer Spending

02/19/2013 | By Carisa Chappell

Retail Centers May Look to Medical Tenants to Capture Baby Boomer Spending
With baby boomers spending more on health care and less on retail, Chris Macke, senior strategist with CBRE, has a solution that he says will help retailers capture some of that spending.

The next evolution in shopping centers will be a strategic combination of retail and health care-related tenants, according to Macke. As retailers demand less space, Macke says smart shopping center owners will proactively pursue the increasing spending on health care.

Macke recently spoke with REIT.com to discuss the challenges and opportunities for shopping centers and the concept of “Medtail” as a “natural evolution” for the retail sector.

REIT.com: In a nutshell, how would you describe the Medtail concept?

Chris Macke: Medtail is putting together retail tenants and health care-related tenants.  That’s really what it comes down to. One of the key things I see is retail tenants with health care tenants in the same building across the hall from another. So, if you’re in a shopping center, a mall or a power center, it’s the chiropractor, the hearing aid centers, diagnostic labs and more that are literally across the mall and you just walk out of the doctor’s office over to the retailer. Or, if it’s a power center, you just walk one or two centers down.

The key is that it’s walkable; it’s not just something where you have to actually get in a car. The other aspect of it is that it’s on your same level, and that’s critical. 

REIT.com: What are some examples of how having medical tenants in a shopping mall could benefit the retail sector?

Macke: From the shopping center owner’s perspective, the dead time is usually Monday through Friday between about 9:00 a.m. to 3:00 p.m. When do you go to the doctor’s office? Monday through Friday from 9:00 a.m. to 5:00 p.m. So, there’s a lot of complimentary overlap between these.

If this gets started, when an older couple goes together and there’s a bookstore or fishing store across the hall, the other spouse is going to enjoy that experience a whole lot more. From a health care tenant’s perspective, that can be a real appeal to them. Also, speaking as a working professional, I’d like to have the 45 minutes that I’m waiting to go out to the stores and run errands. To the benefit of the shopping center owners, they get my foot traffic at a minimum and at a time when they normally wouldn’t get it—and maybe for men, at a time when they’d never get it.

The biggest thing is that smart owners will follow the money, because consumers will increasingly move their expenditures from retail to health care.

REIT.com: In your report you mentioned that aging baby boomers are a larger threat to the retail sector than online mega-retailer Amazon.com. Can you elaborate on this?

Macke: Between 2011 and 2016, it is estimated that aging baby boomers will spend $600 billion more on health care-related expenditures. That means shoppers will have an estimated $600 billion less to spend on retail by 2016. This is six times the estimated impact of online sales. 

Amazon as an online retailer will continue to be an issue for retail, but when you look at $600 billion in spending that retailers can’t get to, it that’s a much bigger impact. This just seems like a natural evolution for shopping centers as our demographics have evolved. Smart shopping center owners will also evolve with them.

REIT.com: Are there types of malls that would be more conducive to the Medtail concept or work better than others?

Macke: They are generally all adaptable, but enclosed malls may work best. You don’t have to go outside, you don’t have to deal with the weather and it’s an easy walk, as opposed to big power centers where the medical space is at one end and everything else that you’re going to is at the other end.

REIT.com: Is there anything comparable to this that we’ve seen before?

Macke: There are some things that have certain elements of it, but I’m not aware of anything exactly like it. If so, there isn’t much of it, because we would have already been talking about it. There’s Oakbrook Mall in Illinois where I used to live, and literally adjacent to the mall, there was a separate medical office building. I would go up about five levels to the  doctor’s office. That’s not bad, but what I envision is having health care on the same level of the mall right next to tenants.

REIT.com: What do you consider to be some of the possible challenges to the Medtail concept?

Macke: I think part of the challenge is that there are going to be some shopping center owners who are more proactive in this and there are going to be others who are going to wait for it to happen to them. There will be people who say ‘wow, we have to do this’ and other guys who as their retail declines gets health care tenants on a one-on-one basis.

It’s almost that we are opening up a new market and the proactive guys will get theirs first. Related to that is that this is a different mindset and a different product. We are very siloed: Retail is retail, office is office, medical office is medical office and industrial is industrial.

Most of the time, it doesn’t make senses to mix the two. But with the change in demographics, it does now, and that can be a challenge. I’ve had Twitter discussions on this, and people are trying to get their arms around what this thing is. I think that’s going to be the next big challenge--really opening their minds to something that is outside of the normal things that they can relate to. A third challenge is getting lenders comfortable to help them understand the value and the concept of it.