Calling in the medics

Office & mixed-use development
Office properties struggling to secure tenants in the new reality need to look no further than the medical services segment – as a means to not only fill that vacant space but also to enhance the functions and prestige of the building

As everyone is probably aware by now, the world is a rather different place post-pandemic to how it was before Covid – and the office market has undergone one of the biggest shake-ups. The switch to home and hybrid working models has discouraged many office tenants from expanding their premises even as their companies grow, while others have been actively reducing the volume of the space they lease. And so, the owners of office and mixed-use buildings designed in pre-pandemic times have naturally been having to address the issue of filling up their available space. But every major disruption to the status quo also brings with it new opportunities. In the case of Covid-19, it has been a greater awareness of health issues and an increased demand for medical treatment. As a result, private medical clinics represent one segment of the economy that certainly hasn’t suffered from all the recent upheaval, while increasingly becoming a valued tenant for office property owners – and not just for the mixed-use areas on the lower storeys designated for services but also for space originally designed for traditional office tenants.

Filling your space while raising your status

According to Piotr Chemperek, an associate director of the healthcare advisory in Colliers’ office agency: “Until a few years ago, landlords were reluctant to locate medical clinics in their office buildings due to the specific nature of the business. However, the pandemic, the war in Ukraine, the change in work patterns and the uncertainty in the real estate market have increased interest in the presence of medical companies in office buildings, shopping malls and residential buildings, in short – close to the customer. In addition, owners have noted that adding a medical function raises the status and value of the building. The changing trend in office work in the form of the spread of the hybrid model has strongly influenced the real estate market. Some tenants, seeking to optimise the space they occupy, have decided to downsize, which has led to the increased interest of property owners in medical companies as they continue to grow, expand their portfolios and thus become stable business partners.” But, as he goes on to point out, there is a further incentive for securing such tenants: “Medical companies not only provide traffic for the building, but also have a positive impact on the other retail and service establishments that employees now expect to have near their place of work.”

That this is now the perspective of the property owner is confirmed by Olga Adamek, the senior leasing manager of asset management company EPP: “There has always been and will be a demand for medical services, so this type of tenant is more resilient to the changing economic situation and guarantees stability. The lease contracts tend to be long-term, which is beneficial for both parties. The main reasons for this are the relatively high ‘entry costs’ associated with required fit-out and space adaptation as well as patients getting accustomed to a certain location. The presence of a medical facility in a complex also provides confirmation of the high standards that the building meets. And, last but not least, cooperation with a medical clinic can boost the property’s reputation and attract other tenants. The proximity of the clinic is valuable for smaller service providers, such as cafés, shops and other service points that benefit from the intensified traffic around and within the property,” she explains.

Famous for 15 minutes

One of the concepts that was just taking off before the pandemic and one that was given a major boost by the health care challenges it presented is that of the 15-minute city. The idea behind this is to ensure that cities are planned so that work, education, leisure and all essential services are located within a 15-minute walk or a short bike ride or trip on public transport from where the consumers of such services live. This would allow cities to become more sustainable while also being more convenient and pleasant to live in – as well as healthier. “This is a concept that office property owners and managers are very aware of,” claims Olga Adamek. “They are now putting in a lot of effort to ensure that their projects align with this idea, because having easy access to essential amenities encourages tenants to choose a particular location and is beneficial for their employees. Having a medical facility available in the office complex allows employees to take care of their health on-site, saving time associated with commuting to other parts of the city,” she emphasises.

As a consequence, the most ideal location for a medical facility – in the opinion of Piotr Chemperek – is a property in the very centre of a city, one that’s well-connected but that also provides parking. And office buildings tend to offer all of this. “Medical companies are keen to locate in large office buildings, preferably in office complexes that provide access to a huge number of potential clients, as well as shopping malls and large residential areas. Non-central locations with large populations are also in their field of interest, but in this respect, each region and city have their own specific character,” he explains. This is also confirmed by Anna Rulkiewicz, the CEO of Poland’s largest private medical clinic chain Lux Med: “One of the important expectations of our patients is the convenient location of the medical centre, so we strive to have our facilities located close to their place of work or residence.”

According to TopMarka’s ranking of the top brands in Poland, Lux Med was the most valuable private medical centre brand in Poland in 2023, followed by Medicover and PZU Zdrowie, while Lux Med also took 7th place in the ‘Lista 2000’ ranking of the biggest companies in Poland in 2022 published by ‘Rzeczpospolita’. It currently has more than 290 medical clinics, 15 hospitals and about 3,000 partner clinics. In the last year alone, the group opened 19 new centres in such locations as Warsaw, Gliwice, Kraków, Wrocław, Łódź, Toruń and Elbląg, which provide outpatient, diagnostic, rehabilitation, dental, psychological, hospital and long-term care – and many of these have been in office buildings. “Over the last few years, we have observed that the space rental market has changed profoundly. Building owners are trying to offer tenants the most interesting commercialisation of space in terms of services, retail or catering,” says Anna Rulkiewicz. She also confirms the trend for office building owners to turn to medical groups to fill their space: “Increasingly, the proportion of office space is being reduced in favour of other services, including medical care. Building owners definitely see the added value from having a medical facility – among other reasons, because a stable rent payer with a long-term lease horizon increases the credibility for investors or financing institutions.” As a result, the company is now fully geared up for leasing from the owners of such properties. “We cooperate with building owners in terms of leasing on various levels. We take advantage of our existing relationships with the owners, work with intermediary agencies and, of course, have an internal team that analyses the real estate market,” adds the CEO of Lux Med.

So, what kind of size of premises are medical centre tenants looking for and what length of contract do they typically sign? In Piotr Chemperek’s view: “The decision to lease premises of whatever size depends on the company’s strategy and, above all, on the specific range of medical services it plans to introduce to the building. The most common leases are signed for between 300–2,000 sqm, with occasional examples even exceeding that upper value, but standard medical centres occupy about 1,100 sqm.” As for the length of contracts: “Most often they are signed for seven years, but less so for ten due to the current market uncertainty and the desire to obtain the assurance of refurbishing the premises as part of the financial incentive received when the contract is renewed,” he explains, while adding that “medical centres extremely rarely leave their premises and more often than not extend their leases. Rents and service charges are mostly at market levels and do not deviate from average office rates.” Olga Adamek of EPP agrees with his assessment and provides a further explanation for the length of the leases: “The business profile of the tenant is not, as a rule, a factor in determining the terms of the contract regarding costs. Both office tenants as well as service providers are treated the same. Nevertheless, contracts with medical facilities are usually concluded for a longer period than with others – for a minimum period of more than five years. There are two reasons for this: primarily because of the costly process of adapting the space by the tenant, but also due to the patients’ loyalty to the location.”

Getting to the specifics

This raises the question of the specific requirements medical centre tenants have in terms of the fitting-out and layout of the space they lease, as opposed to those of other tenants. “The difficulties related to the signed leases are certainly greater than that of office ones due to the nature of the medical business and the requirements of this type of tenant. The most common technical requirements that must be met in order to sign such a lease include allowing a medical service in the building, daylighting of the premises, adequate room height and the possibility of installing a dedicated air handling unit,” reveals Piotr Chemperek of Colliers. He also points out that, due to the growing importance for landlords of medical clinics as tenants, “it now happens that developers/property owners as early as the planning stage of the building, are trying to provide and designate the space that can be used for medical functions. This requires numerous consultations with designers and architects regarding technical specifications for healthcare uses.” Anna Rulkiewicz of Lux Med, while insisting that drastic changes are not required to the space for such leases, agrees that some adaptation is required by both the tenant and the law: “To a large extent, we have similar requirements to that of the office or retail sector, but the medical service has specific requirements, as set out by the Ministry of Health. A large part of such buildings and their infrastructure allows them to be adapted for medical purposes, even in situations where it is necessary to change the use of space from office to a medical function. Medical activities are carried out based on the highest safety standards, which also requires a lot of support from building owners. This includes the scope of proper maintenance of the technical infrastructure of the building, but also of the surroundings, which must provide the highest comfort and safety for our patients and employees. We pay special attention to this aspect.” Olga Adamek of EPP, meanwhile, emphasises the need for developers to work together with medical centre tenants: “Even though the pandemic is over, its effects will be noticeable for years, as numerous reports and publications indicate. Consequently, some landlords have decided to partner with healthcare providers and design the office project or space with that in mind. Adding medical services to what office buildings offer could happen both at the stage of development and commercialisation of a new property and as part of expanding the functionality of an already existing one,” she says.

Recent leases by Luz Med include 600 sqm in Textorial Park in Łódź and a renewal of a lease of almost 2,200 sqm in O3 business Campus in Kraków, which is managed by EPP, where it operates a dental surgery in building A and a medical clinic in building C. It has been a tenant of the latter complex since 2018. “At that time, our office property already had several additional facilities and amenities available, such as a cafeteria, a shop and an ATM. Our goal was to enhance and supplement the range of services – and the medical facility fitted perfectly. Recently, our tenant has signed a lease extension for another five years. This is the best confirmation for us that O3 Business Campus meets its expectations and Lux Med feels comfortable here,” insists Olga Adamek of EPP. The complex is located on the northern edge of Kraków city centre, making it an excellent location for a medical clinic, but its electricity is also 100 pct sourced from renewable sources and it is BREEAM In-Use certified, which is another important factor for medical chains, as Anna Rulkiewicz explains: “We want the network of facilities to allow the largest possible group of people in a given city to use our services easily and comfortably, but also to meet the highest functional, technical and ESG standards. We make sure that the buildings we choose have a low environmental impact factor. At the same time, we have a number of projects within the group that support the reduction of CO2 emissions across our operations.” EPP, meanwhile, provides green lease appendices to its contracts with all tenants that commit both contracting parties to adopt sustainable practices: “As the landlord, it is our duty to ensure the energy efficiency of equipment and systems used, such as ventilation, air conditioning, heating, and lighting. For example, we modernise the HVAC systems and replace the lighting in common areas with energy-saving LED technology. The provisions of a green lease can also introduce responsible water management, selective waste collection, and the deployment of sustainable materials during the construction, operation and building utilisation, for example, by carrying out interior design work using ecological materials,” reveals Olga Adamek.

The tech aspect

The leasing director of EPP makes another point related to the technological changes that have been accelerated by Covid-19: “The pandemic has also left us with a noticeable increase in the popularity of telemedicine, which could become an opportunity for office property owners and managers. This would require creating space that allows health services to be provided remotely as well as ensuring appropriate technological infrastructure.”

The 15-minute city trend, the pandemic, a sector that continues to grow and is resilient to the economic cycle… these are all obvious reasons why private medical centres are set to be important and valued tenants of office buildings into the future, given their ideal locations, facilities and easily adaptable space – as well as the demand for medical services from the employees of other tenants and local residents. Another is the ageing and (in Poland, at least) increasingly affluent population that is more aware of health issues and has a greater need for medical services. Therefore, to fulfil the needs of our post-pandemic society as well as to fill their own space with high-status and stable tenants, it’s up to property developers and managers to ensure that clinics can find a home in their buildings.