Premise Lease Negotiations

Current Trends in Dental Practice Leasing

By

Ian D. Toms

on

September 15, 2015

September 15, 2015

The commercial real estate industry has changed dramatically in the past five years. As a tenant you need to be aware of the changes and manage your position accordingly.

Remember when Sam the Record Man and A&A Records sold vinyl LPs at their flagship stores on Yonge Street? Vinyl was replaced by cassette tapes, then by CD’s, then by downloads, and now we enjoy our music streaming online. Sam’s and A&A are gone. The buildings they inhabited are being replaced.Remember Blockbuster Video? They rented VHS tapes from thousands of 6000 square foot retail locations, which locations were downsized when VHS was replaced by smaller DVDs. Then the chain vanished with the appearance of Netflix and Apple TV.If you have been following the news, you will have noticed that recently many retailers including Blacks, Cleo’s, Reitman’s, Ricky’s, Pier One, Target, Future Shop, Bombay, Excess Cargo, Eaton’s, Zellers, KFC, Taco Bell and Hudson’s Bay have closed or dramatically changed. How many storefront travel agents have you seen lately? The same factors which affected these retailers affect your practice premises, and you have to adjust your approach to avoid being left behind.

Consider the reasons for this change.

 The internet. The internet based Facebook recently surpassed bricks and mortar based Wal-Mart in value on the New York Stock Exchange. Stunning when you think that the internet did not even exist 20 years ago.

 Canada is different. More people now in metro Toronto speak English as a second language than as a mother tongue.

 Oral healthcare has changed from a relatively low volume professional practice to a high volume retail venture.

In order to remain competitive your practice premises and therefore lease needs to change with the times.First, your lease needs to be written to enable you to make effective use of the internet. Many leases now require the tenant to use an internet service provider dictated by the landlord.

 If the internet service provider designated by the landlord does not have the capacity for you to email scan matrices, your practice will be impaired because you will not be able to send and receive patient data.

 Recall that not too long ago patients paid by cash, cheque and VISA. Now most payments are processed electronically over the internet. Again, you need to make sure that the internet service provider dictated by the landlord will permit you to process payments or you may lose your patient population.

Secondly, the style of real estate is changing. Your premises and lease needs to change accordingly.

 Big box developments are slipping out of vogue, with the mid-sized retail tenants closing or not renewing their leases. Empty store fronts do not attract new potential patients.

 10 years ago there was no storefront retail space available for lease in downtown Toronto. Now significant store front retail space at the bottom of residential condominium is available.

 Relocation from office space to premium retail space produces spectacular results. In some cases production doubles. Imagine relocating your practice into a former of KFC, Harveys or DQ free standing building. Retailers call these premier locations “category killers” as the location provides the operator a significant competitive advantage.

 Signage is now built differently to be more attractive and consume less electricity. Your lease needs to permit you to change with the time and attract new patients.

 Premise size reflects much higher rent costs. Tenants are building:• smaller, well designed and efficient (boutique) practices, or• large high volume group practices offset the overhead.

Third, the type of real estate and therefore patient demographic in many areas is changing, especially in terms of age, cultural background, and patient density per square kilometre. With this change comes increased traffic congestion. The new demographic changes the rules of clinic site selection.

 15 years ago downtown Toronto was empty between 5 p.m. Friday and 7 a.m. Monday because the real estate was almost entirely office towers. This area now has a vibrant residential population composed of young and older singles and couples with few families.

 It’s 2015. You have to market to the younger patient demographic by smart phone apps, and be immediately assessable to public transit.

 In a high density residential community, the population is distributed vertically rather than horizontally. This has the effect of enabling more clinics to thrive in a smaller area. It also means that you must have a long term lease, because a move of even 500 metres will change your access to your patient base significantly. Further, patients will no longer travel distances to your clinic, because the traffic is simply too congested.

You need to change with the times or the times will change without you.