How Med Spas Are Rewriting the Retail Real Estate USA Playbook

For investors, that means re-running pro formas with higher rents, higher tenant improvement allowances and possibly longer lease terms. A med spa that can secure a 7- to 10-year lease with periodic rent steps is more attractive than a retail tenant on a short term.

Risks and limits to expansion

The runway for med spa expansion exists but has clear limits.

• Supply constraints: The market has ~25% less small-format retail space available today than in 2019. That shrinks options for both new entrants and established operators seeking second sites.
• Rising rents: A >30% increase in rents for sub-5,000 sq ft units over the past decade compresses operator margins and may force consolidation.
• Saturation of affluent pockets: The pool of neighborhoods with the household-income profiles that support med spas is finite, meaning geographic expansion is uneven.
• Regulatory and reputational risk: Aesthetic medicine intersects with health regulation. Changes in state medical board rules, liability claims or high-profile adverse outcomes could prompt heightened oversight and insurance costs.
• Competitive clustering: As franchise and private-equity money pushes into the category, markets can overbuild, leading to rate discounting and tenant churn.

Svec warns the runway is narrowing due to tighter availability, competitive clustering and moderating franchise demand. That means investors should be selective, not blindly chase the trend.

Practical checklist for buyers and landlords evaluating med spa tenants

If you own or underwrite retail property in the US, use this checklist when med spas are involved:

• Confirm the proposed space is under 5,000 sq ft or can be adapted cost-effectively.
• Verify local zoning and licensing requirements for medical aesthetic services.
• Ask for evidence of recurring revenue and patient retention metrics from the operator.
• Require creditworthy guarantees or franchise backing for new entrants.
• Budget for higher tenant improvement allowances and build-to-suit timelines.
• Structure lease terms with recovery of specialized capex where appropriate.
• Analyze neighborhood household income; median household incomes above $100,000 are where med spas perform best.

We recommend stress-testing tenant financials at higher rent levels and factoring in potential downtime for regulatory inspections or equipment maintenance.

How this changes retail investment strategy

The move from goods to services is a long-term shift in consumer behavior that changes property-selection criteria.

• Value reallocation: Smaller units in high-income neighborhoods are more valuable for service operators than larger big-box shells aimed at goods retailers.
• Portfolio diversification: Retail portfolios should increase allocations to service-oriented tenants such as fitness, personal care and health services to reflect leasing trends where service tenants took just over 50% of leasing in 2025.
• Flexibility premium: Properties that can convert quickly to service uses—ample parking, modular layouts and easy tenant access—carry a premium.

We consider med spas part of a broader evolution of retail real estate into service real estate. That means investors must evaluate assets not just for foot traffic but for catchment-area income and repeat-visit economics.

Regulatory and operational considerations for operators

Operators expanding into strip centers should prepare for non-retail complexities:

• Medical oversight: State regulations vary for procedures and for what staff clinicians can perform without physician supervision.
• Insurance: Professional liability and property coverage for clinical equipment are non-trivial costs.
• Safety and waste disposal: Clinics must manage biohazardous waste streams, which can create additional expense and crossing issues with municipal codes.
• Marketing compliance: Advertising claims around medical procedures are often regulated, requiring careful copy review and legal counsel.

Operators who plan expansion should lock in experienced site-selection teams and legal counsel early in the real estate process.

Where I see opportunity and where I see caution

From our analysis, the strongest near-term opportunities are in:

• High-income suburban strip centers with limited competition.
• Mixed-use urban projects with affluent residents and on-site parking.
• Multi-tenant centers where med spa operators can anchor alongside complementary services such as fitness studios and premium beauty tenants.

Approach with caution where:

• Small-format vacancy is tight and rents are rising faster than attainable revenue per treatment.
• Local regulations are restrictive or unclear for aesthetic procedures.
• Market shows signs of overbuilding, especially where multiple franchise entrants concentrate on the same ZIP codes.

Conclusion: a practical takeaway

Med spas have absorbed millions of square feet of retail space over nearly two decades and they are now a major driver of leasing in small-format retail. The conversion trend is strongest in affluent urban and suburban pockets where household incomes exceed $100,000, and Los Angeles led the 2024 surge with 217,945 sq ft of med spa leasing. That creates income opportunities for landlords and new asset classes for investors, but rising rents, shrinking supply and regulatory complexity narrow the runway for future growth.

If you are a property investor or landlord, the most actionable step is to re-run your rent-roll scenarios for smaller units and prioritize tenant credit, franchise backing and long-term leases. If you are an operator, secure franchise or capital support and confirm local licensing before committing to a build-out. Finally, remember CoStar’s recent data cautions that some 2025 figures may be understated because leases can take 60 to 120 days to show up in tracking systems, so market activity may be stronger than current snapshots suggest.

Frequently Asked Questions

Are med spas a good bet for retail landlords?

Med spas can be a strong fit if the property sits in an affluent catchment and the landlord secures a long-term lease with a creditworthy operator. Rents for sub-5,000 sq ft units have risen >30% over the past decade, so underwriting must reflect higher TI budgets and realistic revenue assumptions.

What footprint do med spas typically need?

Most med spas prefer small-format spaces under 5,000 sq ft. That size works for treatment rooms, reception and the equipment footprint without requiring large-scale conversion.

How has COVID-19 changed demand for wellness real estate?

COVID was a turning point. After lockdowns, consumers became more appearance-conscious and willing to spend on wellness. By 2024 the wellness sector was valued at $2.1 trillion, and med spa leasing hit record levels in leading markets.

Are there regulatory risks for med spa investors?

Yes. Med spas operate at the intersection of retail and health care. Licensing, physician oversight requirements and liability exposure vary by state and procedure. Investors should factor in regulatory review and insurance costs as part of underwriting.