Michelle Napoli is the editor of Real Estate Media's Net Lease Forum. For the full story, please click on Net Lease Forum .
NEW YORK CITY-Drugstores continue to be one of the most favored subsectors within the net-lease property investment arena, and not surprisingly they have lately commanded some of the highest per-sf prices among single-tenant retail properties nationwide. During 2004, drugstore properties—which accounted for 8% of single-tenant retail transactions—sold for a median of more than $300 per sf, according to estimates in a recent report from Encino, CA-based Marcus & Millichap's research services group. Only fast-food properties garnered higher median prices per sf.
Investors' interest in drugstore properties is widely credited to several factors. The stores have generally been reported increasing revenues as well as active expansion plans, and the same demographic—aging baby-boomers—that is helping to fuel the 1031 exchange and net-lease investment market is also driving the drugstore/prescription business itself. "Drugstores are one of the highest-growth components of the retail sector," notes the April research report of the Boulder Group, of Northbrook, IL. "Drugstores continue to be popular among net-lease investors and are the main staple of IRC 1031 transactions in the net-leased market."
Toward the end of March, Boulder Group was tracking 543 drugstore properties in 29 states available for purchase, with a combined value in excess of $2.3 billion and representing a little less than 10% of the available net-leased retail property market. The figures are down from about a year ago, when the Boulder Group last did a report focused on the drugstore segment; in May 2004 there were 616 stores available with a combined value of $2.5 billion. The Boulder Group attributes the decrease in part to Deerfield, IL-based Walgreen Co.'s increased purchase of its locations. Furthermore, it was about this time last year that the Eckerd chain was sold to CVS Corp. of Woonsocket, RI and the Jean Coutu Group Inc. of Longueuil, Quebec.
Eckerd stores account for the biggest portion of available drugstore properties, at 33.2%, according to the Boulder Group. CVS follows with 26.5%, then Rite Aid with 20.4% and then Walgreen with 19.3%. Osco stores account for just 0.6% of for-sale properties. For all drugstore tenants, the average price is $4.3 million or $326 per sf, Boulder Group reports, while the average cap rate is 7%. "The mean purchase price for a net-leased drug store is up nearly $110,000 from the 2004 report," it also notes, while "net-leased drug stores have a mean cap rate that is nearly 50 basis points lower than the mean reported in the 2004 report."
Want to continue reading?
Become a Free ALM Digital Reader.
Once you are an ALM Digital Member, you’ll receive:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
*May exclude premium content© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
