Connect with us

Plato Vertical Search

Real Estate

Cap Rates for Net Lease Drug Stores Reach Historic Low

News Image

Investor demand for essential retailers carried over from 2020 into 2021

The Boulder Group announced the release of its Net Lease Drug Store Report today. In the third quarter national asking cap rates in the single tenant drug store sector compressed to 5.80%, according to the 2021 Net Lease Drug Store Report. This represented a 59 basis point decrease when compared to the prior year.

“New historic low cap rates levels for CVS and Walgreens of 5.15% and 5.40% respectively were the primary driver of the compression,” says Randy Blankstein, President, The Boulder Group. “Investor demand for essential retailers carried over from 2020 into 2021, propelling cap rates for all three major tenants in the single tenant drug store sector lower.”

According to the report, Rite Aid cap rates compressed by 40 basis points to 7.40% but did not reach its prior historic low level (2008). The increased demand and transaction volume for drug stores in 2020 created a property supply issue in 2021. In the third quarter of 2021, the supply of single tenant drug stores decreased by approximately 20% when compared to the year prior. All three major tenants within the drug store sector experienced decrease in supply ranging from 14% to 26%.

“The supply of drug stores with long term leases remains low compared to historical standards mainly due to the lack of new store development,” adds Jimmy Goodman, Partner, The Boulder Group. “For the second straight year, the median remaining lease term for the drug store sector was less than 10 years.”

While all three tenants within the drug store sector provide investors with corporately guaranteed leases, differences in the credit profiles of each exist. While all three tenants within the sector provide investors with corporately guaranteed leases, differences in the credit profiles of each exist. CVS and Walgreens share an identical investment grade rating from Standard & Poor’s of BBB, while Rite Aid carries a non-investment grade rating of B-. Rite Aid’s rating is the primary reason for the cap rate discount of 225 and 200 basis points compared to CVS and Walgreens. Furthermore, Rite Aid experiences a wider spread between its asking price and closed cap rates when compared to its drug store peers.

The drug store sector will continue to experience demand from investors targeting investment grade rated drug stores. “The limited development pipeline of new stores for all three tenants will require that the majority of the supply of long-term leases will be provided by blend and extend of existing leases or larger portfolios of sale leasebacks,” according to Blankstein. “Private and 1031 exchange buyers will continue to be the primary acquirer of single tenant drug stores.”

About The Boulder Group

The Boulder Group is a boutique, Chicago-based investment real estate services firm specializing in transaction and advisory services for single tenant net lease properties. Founded in 1997, the firm has closed over $6 billion of net lease property transactions. The firm provides a full range of brokerage, research, advisory, and financing services nationwide. The level of annual, single-tenant transaction volume consistently ranks the firm in the top 10 companies nationally, according to industry benchmarks determined by CoStar and Real Capital Analytics.

Advertisement. Scroll to continue reading.

Share article on social media or email:

PlatoAi. Web3 Reimagined. Data Intelligence Amplified.
Click here to access.

Source: https://www.prweb.com/releases/cap_rates_for_net_lease_drug_stores_reach_historic_low/prweb18295066.htm

Advertisement

Related Streams

Blockchain

Today, despite the risks in using cryptocurrencies as well as the moves to tighten control over cryptocurrencies by the governments, cryptocurrencies are increasingly widely...

Blockchain

MyTona has become the first company in Russia to announce its plans in the Metaverse sector. The Yakutsk-based game developer said in a release...

Blockchain

ELON and its astronomical surges have always managed to astonish people from the crypto-space. For instance, the said coin quite recently registered a massive...

Blockchain

Play-to-earn gaming platform Axie Infinity recently posted on Twitter that “A Genesis Land Plot just sold for 550 ETH.” Amounting to $2.3 million, it...