The health care industry is going through a series of stark trends that affect economic relationships between hospitals and nearby commercial property. The site selection of large hospitals has always had a major effect upon the fortunes of surrounding retail, and nowhere is that relationship felt more keenly than in the urban setting. So when such hospitals close, the prospects tend to dim for the restaurants and convenience stores nearby dependent upon the thousands of foot-traffic customers the hospital attracts.
While there is no discernible wave of hospital closures nationally – despite what some strident political opponents of the new Affordable Care Act law say – there is a pair of trends in healthcare that are reworking the economics of health care property. The first trend is medical consolidation. Consolidation is the concentration by purchase of medical properties under a single provider network, more or less characterized by the independent neighborhood clinic becoming a satellite of a large provider or hospital / network. Consolidation tends to not spread disruption in urban settings as the changes are in ownership and operations, leaving doors open and a stream of patients and families untouched.
The more disruptive trend in terms of property is found on the other side of the first one. Increased patient flows to neighborhood clinics are being driven by hospitals increasingly spinning off outpatient care such as dialysis and MRI imaging to these satellite clinics. With the large hospitals facing aging facilities and a increasing concentration on inpatient care, facilities built for both decades ago fall out of favor and closure becomes more likely.
And that’s bad news for the surrounding business property performance. One illustrative example comes from the Lincoln Park neighborhood in Chicago, where the recent closure and moving of Children’s Memorial Hospital has left the neighborhood in a retail “dead zone”.
According to an analysis by the Lincoln Park Chamber of Commerce, more than 1.5 million people visited the hospital each year, for an average of 4,100 people a day.
When the hospital moved to Streeterville in June 2012 and became the Ann & Robert H. Lurie Children’s Hospital, it took more than 4,300 employees with it, according to the chamber.
One of the businesses that decided to pull the plug on its Lincoln Avenue location, Costello’s Sandwiches, has had success at its other three locations for years.
The Lincoln Avenue location lasted only seven months.
“Our original thought was we really liked the space,” said Rob Procell, co-owner of Costello’s. “I think that specific location being on that stretch of the street is going to turn into a dead zone.”