{"id":1004215977,"date":"2018-04-04T05:34:00","date_gmt":"2018-04-04T13:34:00","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004215977"},"modified":"2022-12-08T14:48:15","modified_gmt":"2022-12-08T22:48:15","slug":"are-net-leased-pharmacies-just-what-the-doctor-ordered","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/","title":{"rendered":"Are Net-Leased Pharmacies Just What the Doctor Ordered?"},"content":{"rendered":"

By Peter Bauman, JLL Senior Vice President<\/p>\n

\"\"The retail real estate landscape has become increasingly more challenging to navigate, as buyers become more selective and owners look for new ways to drive revenues.\u00a0But pharmacies might be just what the doctor ordered\u2014at least when\u00a0it comes to net-leased assets.\u00a0\u00a0<\/span><\/p>\n

The numbers speak for themselves.\u00a0According to JLL research, capitalization\u00a0rates\u00a0for\u00a0net leased\u00a0pharmacy transactions\u00a0in 2017 averaged 5.5\u00a0percent\u00a0nationally,\u00a0representing\u00a0the lowest\u00a0annual\u00a0level\u00a0on record, and illustrating the strong level of investor demand.\u00a0The picture for the broader net lease retail market<\/a> is less positive. While pharmacy assets saw continued cap rate compression in 2017, the sub-$10 million retail market\u00a0as a whole\u00a0saw upward pressure on cap rates.\u00a0\u00a0<\/span><\/p>\n

\"\"<\/p>\n

Combined with the fact that the average deal size\u00a0for pharmacy transactions\u00a0grew\u00a0by\u00a08 percent from 2016 to 2017, amid declines in U.S. commercial real estate transactions overall, these statistics are indicative of the\u00a0robust\u00a0investor demand for this asset type.\u00a0\u00a0<\/span><\/p>\n

Demand\u00a0<\/b>highlights<\/b>\u00a0investor evolution<\/b>\u00a0<\/span><\/h2>\n

While recent merger and acquisition (M&A) activity has consolidated the players\u00a0in the pharmacy space and created some unknowns,\u00a0investors are still more surefooted in the space than in recent years.\u00a0<\/span><\/p>\n

But with thousands of chain store pharmacies located around the country, how are investors making their choices on which ones to look at? The fact is, investors are much savvier about their approach to buying pharmacies. While the basic metrics are still critical (cap rates,\u00a0lease\u00a0term,\u00a0tenant credit rating, rent escalation, etc.) they are moving beyond\u00a0these factors to predict the true value of the foot traffic in and out of the store\u00a0and pharmacy sales.\u00a0\u00a0\u00a0<\/span><\/p>\n

Investors are also adding in the physical location of the store.\u00a0Most\u00a0pharmacies have adopted a convenience store model\u2014think\u00a0Walgreens, CVS and Rite Aid\u2014 and occupy prime retail\u00a0corners and outparcels.\u00a0The sales produced by the front-end store\u00a0element\u00a0and pharmacy sales are also a key factor in predicting a location\u2019s health.\u00a0<\/span><\/p>\n

A changing landscape<\/b>\u00a0<\/span><\/h2>\n

There are still questions that remain, particularly when it comes to M&As.\u00a0How will Albertsons buying the remaining Rite Aid locations raise the credit of those stores, and pique investor demand?\u00a0What does Walgreens Boots Alliance\u2019s acquisition<\/a> of\u00a0nearly 2,000\u00a0Rite Aid\u00a0stores\u00a0mean for its competition with CVS?\u00a0\u00a0Will the CVS and Aetna merger pressure\u00a0pricing on\u00a0other pharmacies, and increase their prescription revenue?\u00a0<\/span><\/p>\n

For now, CVS\u00a0and Walgreens\u00a0stores are\u00a0some\u00a0of the stronger bets investors can make in the pharmacy space, as their credit and leasing terms are typically\u00a0often\u00a0favorable.\u00a0We don\u2019t see that changing soon, but perhaps evolving as each company hones its strategy now that they have more brick-and-mortar locations.\u00a0\u00a0<\/span><\/p>\n

What we do know is that consumers still love their corner pharmacy, and the demand for a brick-and-mortar location that provides their prescription medicine isn\u2019t going away anytime soon. In 2016 (the latest year for which data is available) Americans used mail or online methods to obtain $106\u00a0billion\u00a0of prescription drugs. While that is a large number, it represents less than a quarter of total the $465 billion\u00a0in prescription sales that year,\u00a0according to Morgan Stanley.\u00a0<\/span><\/p>\n

Another factor to watch in 2018 is what the Fed does with interest rates. It is likely interest rates will\u00a0continue to go up, which will put pressure on cap rates\u00a0and pricing\u00a0as the market adjusts. Despite these unknowns, we expect to see\u00a0cap rates remain strong and therefore\u00a0continued investor demand for pharmacy assets, especially as some of the dust settles from M&A activity.\u00a0\u00a0<\/span><\/p>\n

\u00a0<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

While recent M&A activity has consolidated the players\u00a0in the pharmacy space and created some unknowns,\u00a0investors in the sector are still more surefooted than they’ve been in recent years, notes JLL Senior Vice President Peter Bauman.\u00a0<\/p>\n","protected":false},"author":1210,"featured_media":1004216028,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[23891,21684],"tags":[35926,32796,36503,37624,33239,36502],"class_list":["post-1004215977","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-national","category-viewpoint","tag-cvs-health","tag-jll","tag-rite-aid","tag-single-tenant-net-lease","tag-triple-net-lease","tag-walgreens-boots-alliance"],"acf":[],"yoast_head":"\nAre Net-Leased Pharmacies Just What the Doctor Ordered? - Commercial Property Executive<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Are Net-Leased Pharmacies Just What the Doctor Ordered?\" \/>\n<meta property=\"og:description\" content=\"While recent M&A activity has consolidated the players\u00a0in the pharmacy space and created some unknowns,\u00a0investors in the sector are still more surefooted than they've been in recent years, notes JLL Senior Vice President Peter Bauman.\u00a0\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2018-04-04T13:34:00+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2022-12-08T22:48:15+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/04\/Bauman_Peter-Color_4x6-e1522678797852.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"999\" \/>\n\t<meta property=\"og:image:height\" content=\"809\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Peter Bauman\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/\",\"name\":\"Are Net-Leased Pharmacies Just What the Doctor Ordered? - Commercial Property Executive\",\"isPartOf\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#website\"},\"primaryImageOfPage\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/#primaryimage\"},\"image\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/#primaryimage\"},\"thumbnailUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/04\/Bauman_Peter-Color_4x6-e1522678797852.jpg\",\"datePublished\":\"2018-04-04T13:34:00+00:00\",\"dateModified\":\"2022-12-08T22:48:15+00:00\",\"author\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/#\/schema\/person\/7b1678d31e0bd663cc66508a3ea3054e\"},\"breadcrumb\":{\"@id\":\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/#breadcrumb\"},\"inLanguage\":\"en-US\",\"potentialAction\":[{\"@type\":\"ReadAction\",\"target\":[\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/\"]}]},{\"@type\":\"ImageObject\",\"inLanguage\":\"en-US\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/are-net-leased-pharmacies-just-what-the-doctor-ordered\/#primaryimage\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/04\/Bauman_Peter-Color_4x6-e1522678797852.jpg\",\"contentUrl\":\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2018\/04\/Bauman_Peter-Color_4x6-e1522678797852.jpg\",\"width\":999,\"height\":809,\"caption\":\"Peter Bauman. 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