Cutting operational costs and maximising income represent two of the most important priorities for any GP practice looking to remain viable. Balancing the books and remaining profitable is becoming more complicated and challenging all the time, meaning that all aspects of income and outgoing must be carefully considered and reviewed.
For thousands of surgeries across the UK, one significant source of income is the rent paid by the pharmacy operators co-located in their surgeries. This arrangement can be lucrative for the practice, but unfortunately there are many instances where pharmacy owners and operators are paying rents that are far too low. Research suggests that many GP surgeries could benefit from reconsidering exactly how much rent they are being paid for their premises.
This is precisely why experts recommend seeking GP surgery valuation advice from the professionals when the pharmacy rent is due for review. Evidence suggests that there is so much money effectively going to waste each and every day as a result of pharmacies being valued too low by GP practices.
As to why pharmaciesare being valued too low in the first place, the following issues are known to contribute to this problem:
1) Inaccurate Initial Valuations
In a great many instances…most instances in fact…pharmacy companies instruct surveyors to represent them during the negotiation of lease terms for surgery space; one of the primary objectives of their surveyor is to negotiate the lowest possible rent. As a result, the surveyors representing pharmacy operators typically propose that the rent paid is lower than the true market rent of the accommodation. If the GP owner doesn’t seek professional advice and representation, they could find themselves agreeing to a deal that really isn’t in their best interests.
In addition to this, one common tactic used by pharmacy companies and their representatives is to offer a high initial capital payment in order to reduce the level of rent over the full term of the lease. This can appear to be an attractive proposition initially, but over the long-term can lead to heavy and on-going losses for the GP surgery. Again, professional advice and representation on the part of the GP practice is important to ensure the GP Practice are protected from such losses.
2) Incorrect Approach to Valuation
Another extremely common, yet hugely detrimental mistake is that of having the rental space itself valued in an incorrect manner. In many instances, the available space is appraised and valued in the exact same manner as if it were a standard retail unit i.e. based on the amount of space being occupied. However, this does not take into account the specialist nature of the pharmacy business itself, nor the added value of the pharmacy being attached directly to a GP surgery.
It is estimated that this inappropriate approach to the valuation of pharmacy accommodation could be costing GP surgeries up to 30% in terms of annual rental income. This can represent a significant loss to practice income over the long-term, which is why professional consultation should be regarded as essential.
3) Patient Volume Increase
The value of the pharmacy will almost always be related to the value and success of the surgery itself. A lower patient list will impact the value of the pharmacy space detrimentally, while a higher patient list will increase the value of the space. As patient numbers rarely remain fixed over the medium to long term, regular reviews of the rent relating to this accommodation is important.
As an example, if the surgery’s patient list was to increase consistently over a number of years, it is undoubtedly in the Practice’s interests for the rent paid by the pharmacy tenantto reflect the increase in the Practice patient list. In order to ensure this, it is important that regular rent reviews are part of the occupational terms agreed between the GP practice as landlord and the pharmacy tenant.
4) The Wrong Advice
Last but not least, it’s not enough to simply take on the first surveyor or advisor available in the hope that the valuation advice they offer will be accurate. Instead, it takes an experienced and reputable professional to ensure that absolutely all factors are taken into consideration, before coming to a conclusion.
Depending on the terms of the lease itself, making modifications and amendments at a later date can be difficult or even impossible. As such, it simply makes sense to ensure that everything is exactly as it should be before entering into any kind of agreement.
Quite often, the wrong advice has the potential to be worse than no advice at all!