Rise Of High-End Veterinary Practices Coincides With Retail Bankruptcy Wave

As the number of animal healthcare facilities in the U.S. has grown in recent years, more spaces vacated amid a wave of high-profile retail closures are going to the dogs.

Operators behind new facilities are looking for sleek, high-tech spaces that are more reminiscent of human healthcare spaces than the homey converted residences that used to define pet healthcare. It's a response to a new generation of pet owners with increasingly rigorous veterinary care expectations.

“These look like minihospitals,” Terravet Real Estate Solutions CEO Dan Eisenstadt said of the modern facilities his company builds. “[Pet owners] want healthcare settings because they’re viewing their pet in more of a human way.”

The number of veterinary practices across the U.S. grew by 18% between 2009 and 2022, to about 34,000, according to the latest data from the American Veterinary Medical Association. More than 1,000 facilities were opened between 2021 and 2022 alone.

That has been fueled by the pandemic-driven uptick in pet ownership. One in 5 American households adopted a new pet between March 2020 and May 2021, according to the American Society for the Prevention of Cruelty to Animals.

With many workers staying home all day, they were spending more time with their animals and became more attuned to their health needs. 

But this trend, which Eisenstadt dubbed the “humanization of the human-animal experience,” was already well underway.

It can partly be pinned on pets filling the void as younger generations delayed traditional milestones like marriage and having kids, he said. Baby boomer empty nesters have also adopted at high rates in recent years.

All of this means that veterinary care is in high demand.

“Everyone has a Fluffy at home, and they want to make sure Fluffy is OK,” said Wine Group CEO Brian Wine, a vet-centric broker.

That growth has attracted multinational conglomerates like Mars Inc., which owns BluePearl Pet Hospital and VCA Animal Hospital, and private equity players that own fast-growing players like Thrive Pet Healthcare and NVA. Corporate owners made up 50% of the vet market in 2021, according to animal health consulting firm Brakke Consulting.

That has created opportunities for real estate specialists.

“Corporate consolidators are interested in their business more than they are the real estate,” Wine said.

BluePearl tapped the Pennsylvania-based private REIT Terravet last year to identify and renovate a space for a new emergency and specialty care facility in suburban Seattle.

“They came to us a few years ago and said, ‘We have a really great practice that is in a tight facility, and we can’t hire veterinarians and we can’t add an MRI,’” Eisenstadt said. “‘We know where we want to be. Would you guys go with us and identify a building and then buy it?’”

Terravet spent $4.8M on a former brewery in Tukwila, Washington, and another $1M on tenant improvements and leased it to BluePearl.

The space had been empty since the 2021 closure of Odin Brewing. It was one of many craft breweries that shuttered after the industry faltered postpandemic. 

Former breweries, many of which were built in industrial parks, can be turned into large emergency care centers. General practitioners often want to be in convenient, high-traffic areas, and many are identifying retail boxes that pharmacy and bank chains have been exiting at high rates, Eisenstadt said.

“They can occupy similar freestanding buildings,” he said.

Detached suburban spaces often make more sense for pet healthcare adaptive reuse projects than in-line ones, where tenants can sometimes run into zoning issues and opposition from neighbors concerned about noise, Eisenstadt said. 

High-tech, 24/7 vet facilities like the one Terravet built for BluePearl were a rarity 30 years ago, but they now make up about half of the company’s $500M portfolio, Eisenstadt said. These cutting-edge facilities also draw in vets, who he said are in short supply nationwide.

Kyle Granger Jr. recently finished his veterinary residency at Colorado State University and will start working at a Thrive location in Illinois later this summer.

The brand is part of the Pathway Vet Alliance. TSG Consumer Partners, a private equity firm that invests in companies like Crumbl, Dutch Bros and Planet Fitness, purchased a majority stake in PVA in 2020.

Granger said he prefers corporate life to working at an independent practice because he won’t be asked to take on any financial responsibility within the business.

“At some point they’re going to ask, ‘Would you like to buy into the hospital?’” he said of more traditional mom-and-pop operations. “With corporate, you’re not going to have that.”

The outlook isn’t entirely rosy for the veterinary sector. Although the Bureau of Labor Statistics expects the number of vets across the U.S. to grow by 19% between 2023 and 2033 — fast outpacing the average across industries — some metrics indicate that demand for care may be tapering off.

Revenue across veterinary practices is up 1.6% year-over-year, but AVMA found that individual visits are down 2.7% over the same period. Regardless, Eisenstadt said the number of annual visits remains up from when Terravet and The Wine Group started up about a decade ago. 

It’s still a small sector — Eisenstadt said he knows of fewer than 10 companies focused on this niche — but perceptions about it have changed drastically in recent years.

“Back when I first started this, people were like, ‘What’s the credit behind this?’” Wine said. “Everyone I knew thought I was crazy.”

Now, some of the people who doubted the broker back then are trying to work with him again.

“We’re more mainstream than ever before,” he said.