National CRE News In Your Inbox.
Sign up for Connect emails to stay informed with CRE stories that are 150 words or less.
Single-Tenant Drugstore Sales Volume Rises 30% YTD
National asking cap rates in the single-tenant drugstore sector increased 17 basis points year-over-year to 6.39%, in the third quarter, according to the Boulder Group’s latest report on the sector. Accompanying this rise in cap rates was a 30% increase in transaction volume year to date.
“Throughout 2020, net lease investors focused on essential retailers and accordingly the drugstore sector experienced a significant increase in transaction volume,” says Randy Blankstein, president, The Boulder Group.
According to the report, the main driver of the cap rate increase was a shorter average remaining lease term, dropping to 10 years in Q3.
“Throughout the pandemic the three main drug store tenants—CVS, Rite Aid and Walgreens—did not ask for any rent relief or concessions,” said Jimmy Goodman, partner, The Boulder Group. “These tenants remained open due to their essential status and continued to pay rent on time.”
Despite increased demand, single-tenant drugstores provided a degree of value for investors. In Q3, the sector was priced at a 33-bp discount to the overall net lease retail sector. This was primarily attributed to the aging supply of drugstore properties with a shorter lease term.
“The significant demand for drugstore assets combined with the increased number of transactions has depleted the sector of quality assets,” said Boulder Group SVP John Feeney. “When compared to 2019, the overall supply of single tenant drug store properties decreased by approximately 10%.”
Furthermore, the supply of long-term leased properties has decreased as well. In 2019, leases with more than 15 years remaining on their primary term made up approximately 25% of the market. In 2020, this segment has decreased to approximately 15% of the market.
“Transaction velocity for the remainder of 2020 should continue to favor essential retailers with drugstores being a beneficiary of the increased demand,” according to Blankstein.
For comments, questions or concerns, please contact Paul Bubny
- ◦Sale/Acquisition
- ◦Lease
