Can medical districts like Harley Street stay relevant in today’s market?
The medical district of London, known simply as Harley Street, is a cross between a national heritage site and centre of pioneering medicine. For medical tourists that’s an attractive mix, but there’s also a tension between the two sides and resolving it is getting harder by the day.
Harley Street, where medicine has been practiced for more than 150 years, likes to think of itself as home to the best healthcare in the world. It has a case: 5,000 clinicians work within its 92 acres in what it claims is the world’s most concentrated cluster of medical specialists spanning more than 250 specialisms. Conventional medicine on the streets running north to south and alternative on those running east to west.
The entry of the German brand Schoën Kliniken, a new proton therapy centre and a rise in demand for some residents following the fall in the value of the pound also suggests Harley Street is in rude health. Disappointing 2016 results for Hospital Corporation of America (HCA), an anchor tenant, which is treating less Arabs because of the oil crisis, says otherwise, but in fact the street has never been based around medical tourism anyway.
Take a look around the world at other centres of leading medicine, however, and Harley Street’s reputation is more questionable. The Cleveland Clinic, for example, which has spurned Harley Street in favour of nearby Victoria for its first European hospital, has revenues of $8bn a year and 50,000 staff making it the second largest employer in the entire US state of Ohio. Telemedicine is also opening up access to leading specialists to the world. Can Harley Street’s famous post-code compete with these forces?
Still, the more radical challenge to its business is probably change to the delivery of healthcare itself. The early 20th century saw the number of doctors practicing on or around Harley Street jump from about 200 in 1924 to 1,500 by 1948 as they traded in flats above their consultation rooms for suburban homes. The 21st could see the reverse, with the private practice model coming under threat from industrialised healthcare.
Andrew Hynard runs the Howard de Walden Estate, London’s 35th largest landowner, and the custodian for most of Harley Street as well as the offices, shops and residences that surround it. He agrees that the old medical consultation room is under pressure and the leading specialists that he wants to attract are increasingly attached to groups, often international, who demand more space.
“A lot of our focus over the last five to ten years has been trying to improve the calibre of the providers on Harley Street, which relies more and more on improving the buildings themselves,” he says. “Our biggest constraint is physical: we can go out the back, we can go down and we will make selective acquisitions if needed, but this is not Dubai, we don’t have a desert to build over.”
The estate has turned away from cosmetic treatment which has “tarnished” the street in years gone by, says Hynard, and is moving towards more cutting-edge diagnostics and treatment. He gives the example of the proton beam, a paediatric cancer hospital and a mental health facility whose arrival he expects to announce soon. Collaborative office space where “the brightest practioners can come together, have somewhere to touch down and engage with other specialists”, is also in the works. And he wants more oncology, paediatrics, mental health, diabetes, heart disease and fertility providers.
In the past four years, 45 new clinics have opened in the Harley Street Medical Area (HSMA). The Mayo Clinic, perhaps healthcare’s most respected brand, is also looking for a site in central London though not in the HSMA itself. The Cleveland Clinic may have already begun work on its 200-bed multi-specialty hospital elsewhere, but Hynard claims ‘most people will come and have a chat with us first and if we can’t accommodate them we’ll point them in the direction of someone who can’.
By healthcare’s standards, this constitutes a period of rapid change with implications beyond Harley Street. Dr Victor Chua, partner at the consultancy Mansfield Advisors, says the American academic medical centres lining up to open hospitals in the capital will bring something new – and better – to the market. “The hotelier model can’t offer clear pricing, joined-up care or visibility to patients,” he says.
The star-doctors on Harley Street will be able and motivated to resist change for longer than anyone else. And, though, newly qualified consultants are more open to a career solely in the private sector than they ever have been, they are still wary of losing their insurance or touch with the profession. Then again, Advanced Oncotherapy, which is installing the proton therapy machine in the basement of a Georgian terrace, and Cleveland London, a £300m initial investment, can afford to wait.
“If anyone is going to moves things forward it will be Cleveland, famously led by Dr Toby Cosgrove, where everyone is salaried, has a one year contract and gets a performance-related-bonus based on the perceptions of co-workers. The difference between a paternalistic organisation like Cleveland, which encourages employees to live healthier lives (to be non-smokers and a healthy weight, for example), and private healthcare as practiced in the UK right now is like chalk and cheese.”
No asset class is free from risk, of course. “Retail is undergoing structural changes from online and offices are going from long-let to co-working spaces,” Hynard says. Medical property also grants de Walden more income than any other sector at around 40% of rental income and that’s growing as it gains higher rents on bigger areas.
Hynard says he can normally pre-let buildings to healthcare providers two or more years in advance of development as opposed to having to build first and rent later in offices or retail. If he gets the buildings right, he says there is “healthy overdemand” for space, the occupier often invests similar amounts in the building themselves and will take 20-year-plus leases as a consequence. That level of risk means yields for medical buildings, with good covenants, hover around 4% or less, albeit in a low-interest rate environment.
The other side to de Walden’s thee-year plan to improve the reputation of the street is a dedicated outreach programme to London based embassies including those of Russia, China and the USA, all of whom will attend the Harley Street Medical Area Forum in September. “Our tenants’ principle customer is domestic, but increasingly we’re seeing visitors from abroad,” says Hynard.
What do medical tourists want? Basically, Hynard claims they just want London. Then what do his tenants that are serving them want and what role does the estate have in providing it? He says it helps to look at it as if it were a shopping centre. “When you go and create a Westfield [shopping centre], for example, you start with your anchor stores, or the hospitals in our case. Then to add the variety you need the niche retailers or specialists. If you get the blend right, you can have the whole solution.
“We also thought it important to get collaboration going between the providers. The first reaction was “hang-on these are our competitors”, but with a bit of encouragement we managed to get them to Arab Health, for example, with a united front. There are limits to our role there, but we do what we can.”
We would welcome your thoughts on this story. Email your views to Claude Risner or call 0207 183 3779.
