Location and property strategy for private practice

In this podcast, Julian Muldoon, Director at 1Group Property Advisory, shares his expert advice on the importance of your location strategy decisions, gives a list considerations to think about when choosing a practice location, answers the common question of which is best between leasing or buying, and much more.

This podcast is brought to you by DPM Financial Services in partnership with 1Group. DPM is a specialist medical financial advice firm that aims to educate doctors of Australia to make the right financial decisions and achieve their financial goals.

DPM Financial Services is all about you getting the right advice that suits your personal and professional needs and making sure you have confidence in your financial future.

You can get in touch with Julian for a free no-obligation chat or directly by calling his mobile 0480 024 214.

  • Transcript
    Please note this is a machine generated transcription and may contain some errors.
    *As always, all in this PODMD podcast is intended for health professionals and the comments are of a general nature. Information given is not intended as specific medical advice pertaining to any given patient. If you have a clinical issue with one of your patients please seek appropriate advice from a colleague with expertise in the area.

    The financial journey of a doctor is unique and complex. DPM Financial Services is a specialist medical financial advice firm that aims to educate doctors of Australia to make the right financial decisions and achieve their financial goals.

    DPM Financial Services is all about you getting the right advice that suits your personal and professional needs and making sure you have confidence in your financial future.

    Property advocacy is a service offered by DPM in partnership with 1 Group Property Advisory. Today I’d like to welcome to the PodMd studio, Julian Muldoon, Director at 1Group.

    *We do hope you enjoy this podcast but please remember that the information discussed here is of a general nature and is not intended to serve as advice. The views and opinions expressed in this podcast are those of 1Group, not PodMD. DPM Financial Services recommends you obtain advice concerning specific matters before making a decision.

    Julian, thanks for talking with us on PodMD today.

    Julian: Thank you for having me

    Question 1
    The topic of today’s discussion is Location & Property strategy for private practice but before we get to that, Julian, can you explain to us for any of our listeners who are not aware, what is a property advocate?

    Julian: So a property advocate is someone who represents the buyer or the tenant. So in the world of property, you’ve got sales agents and leasing agents, and they represent the vendor. Sales agents selling a tenant leasing agent would be trying to lease a property and a tenant Rep or a property advocate represents the incoming tenant or buyer so they’re the one who is accountable for in a lot of cases, location, strategy, property search, site due diligence, pricing and negotiations. Essentially that kind of frees up the paying clients to focus on what they do best and have someone in their corner have someone advocating for them.

    Question 2
    How important is location strategy and why?

    Julian: Your location strategy with private practise is super important. I don’t think there’s any other business that requires as much research and analysis on a lot of different trends, and then they need to combine that with running, what is a really complex business model in very specific locations. So understanding, first of all, the suburb and location that’s going to give the business the greatest chance of success, which really depends on the type of health services that are being offered.

    So for example, a specialist may have very obvious need to be near a hospital if they’re delivering babies, or if they need to be on site very quickly, and that gives them a very narrow search parameter. But when you’re looking at general practise veterinary dental, there’s a lot of competitor analysis work that needs to be done. A lot of needs analysis work around demographic metrics and looking at population change and what types of services are in demand. Or you can leverage off within certain areas, so there’s a lot of data and information that needs to be pulled together to identify what regions work.

    And I say regions because if the search is too narrow, sometimes it can be unfruitful, and the right properties don’t present and unfortunately you can spin your wheels in an area for very long time without setting up. So I’d say location strategy really varies depending on the type of services that are being offered, but in all cases there’s definitely a need for part research, part local Intel on competition and having multiple options as to where the right location might be.

    Question 3
    Can you give us a shopping list of considerations when choosing the location for your practice?

    Julian: Yeah certainly, choosing the location can be sometimes an overwhelming one for doctors because there is a lot of moving parts to it and they can’t default by just starting by looking for property, which means you think it caught in the, you know the sales system and the fear of missing out and tending auctions when you perhaps haven’t done all of the homework and understood all the options.

    I think the first thing is always to get a business plan together and have a clear vision and strategy with what you’re trying to create with the health clinic and in the case of all clients understanding the zoning of the target region, there’s only certain zones that are suitable for health care sites, and they generally have some limitations on the size. So for example, in NSW and Victoria generally setting up in a residential zone is a right of use up to a certain size, as long as you comply with things like car parking and access to the site, and that’s where there can be some complexities around getting things like Vicroads approval for widening crossovers or looking at car parking dispensations and different planning overlays.

    So I’d say the zoning is always the the 1st and most important and then then actual structure that’s on the site as well, whether that’s going be suitable and compliant to convert to a health clinic. And whether that’s going require an extension of the roofline, or whether the current building footprint is adequate, all of those things tie into I guess the timeline because you might need development approval or you might just be able to set up very quickly depending on how suitable the property is in its current form.
    The parking is probably the biggest challenge we have with sites and all doctors would have because there’s different ratios depending on the number of practitioners or there can be ratios depending on the size of the clinic, if you’re inside certain what are pre identified areas that they want health care being the Council, so in Victoria it’s called the PPTN and the principle public transport network. If you’re inside that, it’s a different car parking metric, then if you’re outside that and other states have different parameters around that too.

    Generally it comes down to proximity to train stations to infrastructure and to counsel car parking. So, if the Council believed that if a patient shows up and there’s no parks on site, they can very quickly get a park safely and conveniently somewhere else on the street side streets or in the neighbouring council car parks, it’s a lot easier to get a dispensation and if it’s considered to be very accessible to transport.

    I guess the other side to that is then always, is it still appropriate for the patients to walk to the site? You know, if you’re if you’re seeing older patients or patients that are recovering from surgery, you might say well, Council only want me to have seven car parks, but I probably need 15, because I’m gonna have 4 practitioners seeing three patients an hour and I guess the patient flow aspect comes into play as well.

    So the three points I raised there were really zoning location, parking adequacy and also the net lettable area. So the actual leasable space that’s on the site and then also the style of property which really depends on you know what kind of, I guess the branding aspect of the business as well. So there is a, uh, a movement away from residential conversions because they tend to be smaller clinics that aren’t as feasible to run anymore or they tend to be properties that don’t have the right patient flow and workflow without really significant development. Or it could just be price point in this market too.

    So I think there’s some general ones that apply to everyone. Then there’s some more specific ones which would reply to who the core client is, who the target market is, whether you’re looking to position yourself close to a cluster of GP’s because it’s a mental health clinic or whether it’s a proximity to hospital for, for obvious reasons, seeing patients and doing procedures, and it might be that we’re also looking very closely at, you know, demographic data and Medicare billing data to see where there is. You know, high propensity for you know heart conditions or skin cancer conditions based on ethnicity and you know different professions, so I get to see it can get very granular, but there’s always some overarching principles that are kind of uniform depend for every single, every single health provider.

    Question 4
    Do you see it as an advantage or disadvantage being in close proximity to your competitors?

    Julian: So being closer competitors really depends on what services are being offered. So in general medicine it’s ideal to be in an area where there’s the least amount of competitors. So if I’m a general vet services or dental services or GP services, generally want to be in an area that’s got a high population to GP ratio, so you’re looking in most cases of wanting there to be in GP and Dental world north of 1000 people per every full time, you know dentist or doctor. In most cases there’s a very high-level number.

    When you’re a specialist, it’s very different again, you would do tend to, and most specialists tend to know who is in their field and who’s in different areas and what age they are and how many patients they’re seeing. So they tend to have a little bit more knowledge on their specific area of medicine, but I’d say on the on the GP side in most cases that the data piece on the competitor analysis piece is absolutely critical and looking at population growth, which is largely driven by development supply. So they’re the two metrics you look really closely at because you can’t have a strong population growth if there isn’t a strong pipeline of property development.

    And then also looking at infrastructure strategies too. So looking at where there might be a major activity centre that’s going through significant rezoning and government investment, that’s going to be higher density, which is going to create, you know, a. You know greater population in that area that are going to require those services.
    So I would say competition is super important in some cases. Being in health hubs, so you can leverage off foot traffic and referrals from other providers. More of those ancillary providers is equally as important as looking at the competition.

    Question 5
    If a doctor knows their target demographic, how can they strategically match that with a location?

    Julian: Yeah, in most cases doctors know who they’re targeting, and even if it’s a GP clinic that’s offering, you know cosmetic services or a dentist that’s doing the same, or, you know, has some subspecialities. In most cases they tend to know who has the highest uptake of that service And that information is really readily available at a ABS. There’s some incredible data at The Australian Bureau of Statistics, where you can breakdown areas and more specifically their professions, their age, their income, private health uptake data is separate to ABS, but it’s also very important to look at. So you can see within different areas affluence and I guess how they value health.

    And all of that information is really powerful to just give confidence and clarity that the area that’s being targeted is the right area and some of this is irrelevant if the doctors already been working at another clinic within that are and they know that there’s significant demand that the current clinics not meeting or they’re going to split away and set up on their own, and they’re going to have patient goodwill.

    Sometimes the data is less important, but still worth looking at just to have an independent analysis on the region and where it’s heading. And I’d say in all cases it’s very important for doctors looking at second and third clinics. So once they expand out of the areas that they know and have had a lot of experience in, so areas that might be more foreign to them, that’s generally where the data piece becomes a lot more important.

    Question 6
    Is it better to lease or buy your practice property in your opinion? What are the determining factors?

    Julian: This is one that’s always strongly debated, I think amongst doctors, which is buying versus leasing, and the key thing here is there’s really advantages with both options. I mean, on the leasing side, it can carry a lot less risk to lease a property because you’re taking on what is a 5 or 7 or 10 year term. Instead of securing a site that would include would require you to pay stamp duty and take on debt at a time when you’re also potentially starting a new business or expanding into a new location and stretching yourself financially.

    The landlord could be willing to complete what’s considered category one works which could be floors, walls, ceilings, air conditioning, plumbing points to the tenancy plan, and these things can be a cost of, you know, in excess of $50k to $150,000 depending on the size of the site. And in in most cases, they’re willing to give rent free, period, so you could potentially have very little overheads in the first six, 12-18 months, or even a reduced rent for the first three years while you’re getting started.
    So the overarching advantage there is your take on less debt and you have less overheads, so that can be really advantageous to clients, especially if they’re setting up in areas, it might be very affluent and have very expensive price points. So for example in Victoria for looking at places like Toorak and Armadale, very hard to establish yourself there when revenues are low because price points for property is really expensive and it can take 6-12-18 months to find the right side. So leasing allows you to get to market quicker, speed to market with less overheads.

    The downside is naturally that you’re investing in and renovating someone else is property and you don’t have security of tenure. They could at the end of your options you know first term, five years next two options of five years, 15 years later, they could kick you out. Or there could be a relocation or development clause in there if they decide that they want to develop the site. And essentially you always feel like you’re living in someone elses property, because you are.
    And on the buy side, you’re getting the wealth creation aspect of buying a vacant property, converting it to a medical centre, renovating it, signing a long term, lease to it, and that generally increases the property value by anywhere between, you know, 20 to 40% even more, so that is a huge financial upside for any doctor to take a vacant site and turn it into what’s considered a property investment.

    And we generally find a lot of doctors come to us later in their career, saying, you know, we we’re leasing and we wish we had a bought. And we do remind them that it possibly wasn’t the right move for them at the time when they established themselves, but they definitely should consider it at a point when you know when they when they perform, when the business is performing really well, because generally the banks are happy to lend money, and in a lot of cases up to 80-90%, 100% of the value for private practise use, so the debt is often there for them, if the business is performing and also the upside is very low risk, in a sense if they buy the property they lease it back to themselves and they run into some challenges financially. Then they can always put the property on the market. And they would get significantly more for it than what they paid because of the nature of tenant investments being, you know, really highly regarded when there’s a healthcare tenant there.

    The challenge with buying is naturally is that’s a very tightly held property market the commercial property market and in most cases doesn’t move with the same cycles that the residential market does. It’s not as emotional and there really needs to be a lot of lot of due diligence done on the site because in some cases you won’t have assurance of permitted use and you might have an option next Friday and you don’t know for sure you can run your business out of that site so it does carry some risk, whereas on the leasing side you can always make offers subject to town planning approval, so real advantages and considerations with both options.

    Question 7
    How competitive is it to secure commercial property like this?

    Julian: So in the current climate, commercial property is going through a really significant growth curve and we’re seeing it across all sectors, which is somewhat surprising. Industrial property was already performing extremely well pre COVID and that market is now gone in most cases, 30 to 50% higher in value on rental and on per square metre rate to purchase. And that’s because there’s a wider tenant mix. So generally, we don’t have a lot of doctors in in industrial. Perhaps veterinary hospitals or allied health will set up in light industrial, and that’s been really, really challenging.

    Because so many other businesses in manufacturing and warehousing and logistics are expanding operations really aggressively. So, from that point of view, it’s been a real challenge. On the Commercial office side, a lot easier to obtain commercial office and convert it to health care. And that’s what a lot of developers are doing at the moment. They’re repurposing their development applications or their buildings and refurbishing them into health precincts, and they’ll often offer big incentives and look to complete fitouts for them at, you know, at the cost of a very long lease. So you gotta be really careful what you sign up for in that space.

    And on the retail side it has really surprised us how much services in the suburbs has outperformed everyone expectations and generally most sites that are suitable for health care in the suburbs or city fringes are requiring you know, ground floor tendency of you know 200 to 400 square metres without a car parking. And they’re always challenging and hard to find. So I’d say it’s never really a time in the market where commercial property is easy to secure and at the moment it’s really challenging naturally, because interest rates have been so low and a lot of investment is flying back into tangible assets like property.

    So I’d say it should get a lot easier in the next 12 months for doctors to secure the right commercial sites. There should be a slight increase in stock levels, and there should also be a little bit more negotiation leverage as other sectors outside healthcare potentially don’t perform as well, and I think we’ll see a lot more health care businesses setting up and they’re looking to buy their own sites naturally because it’s often the most popular move.

    Concluding question
    Thank you for your time here today in the PodMD studio. To sum up for us, could you please identify the three key take home messages from today’s podcast on location property strategy for private practice?

    Julian: Sure, there’s definitely some take homes from today’s session. I think the first one, and probably the most important, is to really respect and understand the complexity of setting up your private practise in and the property piece because you really need to get the business plan in the business vision right first, probably can be the really exciting thing to gravitate to, it’s tangible and we all have a, you know, strong inclination to want to buy property generally in in the Australian community, but it is fraught with risk, and if you don’t get the business plan right and the location is not right or the properties not right and sufficient for the growth of the business, it can really slow down the performance of it and it’s very hard to move a healthcare business. The fit outs are expensive and very few sites or adequate, so I think going to get the business plan, the vision and the strategy right.

    The second one would be get your team talking to each other. So, in most cases doctors have got a counter in a financial planner, potentially a business advisor. If you then have a property advisory team, they may have property valuations. They may have a search team, research team town planning team. There’s possibly then an architect or a builder involved so there can be 6 to 8 key roles that are involved in that process, and if you’re trying to coordinate everyone first of all things will get missed and it’s very hard to understand where the blind spots are.

    So you really want to have one person that takes the lead on that and is connected to all of your team. I would also say start well before you think you need to. In most cases doctors come to us when they need a site in one to three months. It’s got to be a minimum six months if you’re buying, I’d say start at least 12 months before you need this site, especially if you’re leasing and your lease has got 12 to 24 months left on it. I’ll definitely look to commence your search if its location sensitive. If you need to be within a certain proximity of the current site, that’s super important.

    And also so you have negotiation leverage, if you leave the negotiation until your last, say, three months of the lease, you’ve got no leverage, and generally it makes it very hard to negotiate without leverage.

    I probably said the last one be reached out i you have any questions, don’t be shy to call and book a strategy meeting with us, we’re more than happy to give a rundown on how we approach the process, share some insights on where we see clients get it right where they get it wrong, and just make sure you make more informed decisions so you can reach us on 0480 024 214 and more than happy to spend some time with you to make sure you get this right.

    Thank you for your time and the insights you have provided

    Rob: My pleasure, thank you for having me

*As always, all in this PODMD podcast is intended for health professionals and the comments are of a general nature. Information given is not intended as specific medical advice pertaining to any given patient. If you have a clinical issue with one of your patients please seek appropriate advice from a colleague with expertise in the area.