Contact Us
News

Urgent Care Centers: The Cure For Retail Woes Or Just A Bandage?

Placeholder

As landlords face more retail closures, many have turned to nontraditional tenants like urgent care centers to improve occupancy. Research from Morningstar Credit Ratings found $740M in CMBS loans that had urgent care centers as one of the five largest tenants.

While this mixing of medical and retail may put a bandage on the slow bleed from retail tenants’ bankruptcy filings, it is not without risks. Impediments include consolidation in the urgent care industry, competition and possible changes to the Affordable Care Act.

The number of these centers rose 22.6% from 2014 to 2016, according to the Urgent Care Association of America, a nonprofit industry group based in Naperville, Illinois. With the vacuum that retailers have left, rents in some centers are now cost-effective. U.S. shopping center rents average $14.73/SF as of the first quarter of 2017, per CoStar, compared with medical office rents of $21.46/SF.

Placeholder

Although urgent care centers do not face the same kinds of competition that traditional small retailers face like big-box stores and e-commerce, competition for customers will intensify as telemedicine and the number of people who need healthcare grow. Insurance companies and the ACA control the amount of money providers make from each customer, forcing volume, increasing demand for strategic locations and pushing providers to balance belt tightening with expansion, putting less profitable locations at risk of failure.

Earning higher marks from consumers is also a challenge. In a National Public Radio poll of urgent care patients, 25% described their care as "fair" or "poor." While the industry works at improving the quality of care provided in more casual settings, the explosion of clinics within existing stores could present competition for services. Additionally, employers are opening worksite clinics for employees and their dependents to not only save healthcare dollars but to better manage chronic medical conditions that could lead to higher cost of care. 

Morningstar predicts a downturn in the sector and the potential loss of tenants. However, it does not predict that would increase the default risk for most loans, as urgent care leases are not large.