Can Commercial and Retail Conversions Give Your Health System a Competitive Edge?

Can Commercial and Retail Conversions Give Your Health System a Competitive Edge?

The rise of commercial and retail conversions signifies a significant shift in the corporate and retail real estate landscape. The Commercial Real Estate Development Association reported a peak office vacancy of 17.8% in Q1 of 2023, the highest since 1993. Catalyzed by the pandemic, office demand is on the decline, coupled with an increase of retail space due to the rise of e-commerce. What does this mean for health systems? 

Commercial and Retail Conversions Offer Many Benefits to Healthcare Providers

Even companies with return-to-work policies are leaving their old buildings behind and gravitating towards new Class A office spaces. Class A spaces with better amenities are enticing employees back to the workplace. NAIOP reports that “until these buildings are retrofitted, repurposed, or demolished, a surplus of obsolete space will likely pose a headwind for the broader office market.” Adding to the challenge, high interest rates are making it difficult for landlords to make improvements necessary to upgrade their buildings to Class A. 

Apex Allergy, Lobby

Apex Allergy was converted from a former Italian restaurant.

Retail spaces, while not as severely impacted, are also transitioning. The shift comes from online shopping’s dominance, which accounted for 20.8% of total retail sales in 2023, according to CBRE. Many former retail spots are up-for-grabs and could make sense for smaller spaces like urgent care or physical therapy facilities.  With “big box” chains like Bed, Bath, and Beyond, Party City and Christmas Tree Shops filing for bankruptcy and others like Sears, Macy’s, and Big Lots shuttering some locations, this creates opportunities for healthcare facilities with larger footprints. 

With a surplus of vacant spaces ripe for repurposing and deals on rental rates, there is a unique opportunity for healthcare providers. Why are these spaces well-suited for healthcare conversion?  It really breaks down into two broad benefit categories: location and access. 

  • Substantial parking is often a key advantage offered by corporate and retail spaces.
  • Retail spaces are often in locations with high visibility and traffic counts, making them ideal for attracting new patients.   
  • Healthcare consumers are demanding convenient access. Commercial spaces are ready-made for this type of convenience that easily fits into their daily routine.

The Strategic Advantage of Considering Commercial / Retail Conversions 

Loosening CON regulations are making it easier for competitors to enter new markets. Projects such as ASCs, Imaging Centers, and Freestanding EDs could all be potential candidates for commercial conversions.  Healthcare providers are all clamoring to be first to market, and renovations are one way to achieve that end. According to Healthcare Design’s 2024 A/E/C Survey, 56% of healthcare projects completed in 2023 were budget-friendly renovations of existing construction.  

Commercial conversions offer a strategic edge by saving both time and money. MPS designed a grocery store conversion for Prisma Health that included a 30k SF multi-practice clinic with lab and imaging in under 10 months during the pandemic peak. This timeline would have been unattainable with traditional ground-up construction. And we completed a JCPenney conversion for the Medical University of South Carolina in 2020 that saved over 20% in total project costs compared to greenfield construction. (Also pictured as the main photo above). Although upfit expenses are similar, conversions do save on costs. For instance, associated site-work and core / shell design and construction can cost up to $250-300 per square foot. The cost increases on larger-scale projects.

MUSC Health, West Campus

MUSC Health, West Campus was converted from the former JC Penny retail store.

Challenges and Considerations of Converting Commercial Spaces to Healthcare Facilities

Although construction times can be shortened and start right away, getting ahead of potential supply chain delays is essential. Lead times for HVAC equipment, windows, and electrical switches must be built into the project schedule. Upgrading HVAC systems for healthcare standards, supporting the heat load of imaging equipment, and modifying structures for plumbing and natural light are other substantial considerations. While a vacant shell seems ready for renovation, retail spaces can require modifications. For instance, cutting through slab for plumbing and punching out windows to increase natural light will increase renovation costs.    

There are many factors when considering a retail or corporate space conversion, but having experienced partners to help you through the process makes a difference.

How Our Advisory Services Guide Healthcare Partners Assessing Commercial Conversion Projects

Ultimately, it’s about the numbers. A comprehensive business plan can determine the viability of a commercial conversion, factoring in one-time and ongoing costs, rent and tenant improvement assumptions, and anticipated revenue. Navigating these types of opportunities requires a knowledgeable partner. Our Advisory Services provides invaluable insights, market analysis, feasibility studies and due diligence to inform and optimize your real estate strategy

Ready to meet our Advisors?
Schedule a Call