Pharmacies continue to be a highly desired asset among net lease investors. With CVS & Walgreens leading the way, cap rates for pharmacies continues to compress. The investment grade credit of premier tenants (Walgreens and CVS), long leases and quality real estate makes pharmacies an ideal investment option. As such, cap rates are lower than the net lease retail average. A lack of new supply in the market has also affected pharmacies with investors willing to pay premiums for a dwindling pool of assets.
Though there has been some talk of increasing interest rates forcing cap rates upward – the reality is cap rates have continued to compress. Though interest rates are incrementally rising - they still remain at historic lows compared to the previous market high in 2006. As a result, it still makes sense for transactions to trade at bold low rates.
Among Walgreens and CVS transactions themselves, we can see a definite preference for long leases – 15 years or more. These investments on average demanded much lower cap rates – with average Walgreens cap rates at 6.17% compared to 5.76% for deals with 15+ years on the lease. CVS transactions saw similar cap rate spreads – a 6.30% average compared to 5.88% for 15+ plus years on the lease. In today's market risk adverse properties still demand a premium from investors.
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Jonathan Hipp
Jonathan Hipp began his career in real estate over 25 years ago. In his early years as a broker, he ventured into the net lease industry and quickly began leading the US net lease market, closing over $3 billion in transactions. In 2005, Jon founded Calkain Companies, a company focused solely on net lease investment services. As President and CEO, he has been instrumental in building the firm into one of the leading Net Lease real estate companies, transacting over $12 billion of net lease deal volume over the past 13 years. He has expanded Calkain’s services to include brokerage, advisory, asset management, capital markets, and industry research. He has become a well-known resource, panelist, and speaker at various Net Lease and Industry conferences and is a regular contributor to GlobeSt.com on real estate trends. In June 2015, Jon’s passion for the real estate business was again recognized as he was nominated for the Top Real Estate Player in the DC area by SmartCEO magazine.
