That old big-box store that’s sat empty for five years? Why not turn it into student housing? Or maybe that former church can be converted into an apartment building and that vacant warehouse can become a mixed-use space filled with apartments, offices and retail.
Developers across the country are bringing new life to vacant spaces. That includes those in Minneapolis, St. Paul and the suburbs surrounding these communities. And while it might be more common to turn vacant electronics stores and clothing retailers into apartments and office space, some developers are turning these empty spaces into ambulatory care centers, freestanding medical clinics and outpatient care centers.
Adaptive reuse, the trend of turning vacant commercial and residential spaces into new property types, is hitting the healthcare industry. And Mike Stark, senior manager for project planning and development with Minneapolis’ Kraus-Anderson, said that this trend will only continue to grow.
Why? Patients prefer receiving medical care in outpatient settings when they can. It’s an easier task then fighting their way to crowded and sprawling hospital campuses. At the same time, many retailers are shuttering their brick-and-mortar locations, leaving plenty of space to be converted to healthcare uses.
“Adaptive reuse is a way of looking at a vacant property,” Stark said. “Often, this means vacant big-box stores. There are plenty of empty big-box spaces throughout the country. As consumers’ behavior has changed on the retail side, more people are making purchases online versus going into brick-and-mortar locations. Some of the bigger brands are abandoning their retail facilities and focusing more on online.”
The goal of adaptive reuse is to use as much of an existing structure as possible. But this can prove challenging when it comes to transforming abandoned retail spaces into healthcare facilities. This type of adaptive reuse requires significant structural modifications to existing spaces to accommodate the often heavy and bulky equipment that comes with healthcare uses.
In other cases, developers face clear-height issues. Healthcare facilities don’t need the high ceilings that often come with vacant big-box and other retail spaces. Developers must also consider the airflow in reused space to make sure that patients will be seeking treatment in a space that is healthy and safe.
“It’s not as simple as moving in and turning on the lights,” Stark said.
There’s a clear benefit for adaptive reuse, though: location.
Vacant big-box stores are often located in the prime locations in a community’s business strip. They often sit near major roads. This makes it easy for patients to reach them and can help medical clinics and care centers compete more effectively.
“They might not save a ton of money by going in and renovating one of these spaces,” Stark said. “But what is appealing to some of our healthcare clients are the locations of these buildings. They get the bones of a good space in a location that is itself a benefit.”
What types of medical facilities are benefitting from the adaptive reuse trend? Stark said that most healthcare adaptive reuse projects involve outpatient clinics and ambulatory surgery centers. But acute care and hospital uses are mostly remaining on campus with their current hospital systems, Stark said.
Kraus-Anderson has recently worked on two healthcare adaptive reuse projects in Minnesota and one over the state border in Bismarck, North Dakota.
In Winona, Minnesota, Kraus-Anderson transformed a vacant Kmart into a primary care clinic for Gundersen Health System. The building had been vacant since 2014. The new space offers family and internal medicine, pediatrics, women’s health and imaging services. The facility will also house physical and occupational therapy and an eye clinic.
In Duluth, Minnesota, Kraus-Anderson turned a former Younkers department store into an adult and pediatric therapy facility for Essentia Health.
The locations in both Duluth and Winona were attractive ones, which made the adaptive reuse process a smart move for the healthcare providers behind them, Stark said.
“Both of these locations are in the hearts of their communities,” Stark said. “They allow for easy access for that patient base. If I was a patient, if I am not feeling well or I need to get a procedure, I don’t want to struggle with finding a care center. I don’t want to have parking or access issues. That only adds to the anxiety. That is something healthcare providers consider when looking for locations for their care centers. It’s not top of the list, but it is something they consider. If they can reduce that anxiety for patients, they will take that opportunity.”
Kraus-Anderson did face challenges when converting the former retail spaces in Winona and Duluth into healthcare facilities. Retail structures are built to a different set of standards than are healthcare facilities. For instance, retail stores rarely have the same kind of large and heavy equipment that healthcare facilities do. Because of that, the foundations of the buildings had to be reinforced.
The same is true of heavy medical equipment that often comes down from the ceilings in healthcare facilities. Construction crews needed to reinforce the steel structures of the former retail spaces to make sure they could handle this equipment.
Then there are the challenges that spring up whenever construction crews begin working on buildings that might have sat empty for years. There might have been an undetected water leak leading to mold that must now be remediated. Asbestos might need to be removed.
“You might be opening Pandora’s box when you get into these buildings,” Stark said. “There may be more challenges as you peel the onion back. Some of these buildings have been vacant for many years. That leads to an increased chance for warts.”
Stark says that he expects Kraus-Anderson, and developers in general, to take on more adaptive reuse projects in the coming years, not just in healthcare, of course, but in many commercial sectors. There is a push today for sustainability. Using as much of existing structures as possible is one way to reduce the waste of a typical construction job.
Adaptive reuse won’t become the dominant trend in new healthcare projects, Stark said. But it will become an important part of the sector.
For now, though, much of the focus in the healthcare sector, as it is throughout the U.S. economy, is on recovery. The healthcare sector faced serious challenges during the COVID-19 pandemic as patients canceled, or were forced to cancel, elective procedures. That resulted in lost revenue for healthcare providers, with many closing their outpatient facilities as a cost-saving measure.
The future looks brighter for the healthcare sector today, Stark said. But the impact of the pandemic is still being felt.
“Healthcare providers lost three, four months of elective procedures,” Stark said. “They will never get that income back. You can’t just double the procedures you can do in a short amount of time. Those procedures got pushed down the road. In some cases, patients elected not to have them at all. The last year was a tough one.”
Fortunately, patients are returning for elective procedures now, something that bodes well for the future of healthcare and healthcare real estate.
“People are coming back. They have less anxiety and fear at being inside those facilities as we better manage COVID,” Stark said. “The industry is ready to push forward and put COVID in the rearview mirror.”