Pharmacies Are Changing, But Still Promising Investments

Walgreens recently picked up several thousand Rite Aid stores, keeping it the largest chain in the drugstore business.

CHICAGO—The US drugstore industry has undergone a lot of change in the past few years, including several major mergers and acquisitions, and other players could soon enter the market. But whatever uncertainty any of this has caused, cap rates for the largest chains remained relatively steady in 2017. And experts say those rates probably won’t change much in the coming year.

“We do see interest rates going up in 2018,” Chad M. Firsel, president of Quantum Real Estate Advisors, Inc., tells GlobeSt.com, but any impact on cap rates should be modest, partly because there is a lack of inventory available for sale, especially of properties with long lease terms. Quantum, a Chicago-based firm that specializes in investment sales brokerage, just released its latest pharmacy industry retail report. It found that In the past year, rates for Walgreens properties dropped slightly, from 6.10% to 6.08%. CVS stores also saw a small movement and increased from 5.92% to 5.96%. Firsel says cap rates should go up just a nominal amount in 2018, probably between five and 15 bps.