Drugstore Buying Wars Go Unabated

Drugstore Buying Wars Go Unabated

Investors continue to aggressively pursue drugstore properties — and for good reason. New supply is limited as major chains such as Walgreens and CVS Caremark curtail expansion plans. On the demand side, the modest rise in job growth this year has restored health benefits to many individuals, and bolstered store visits.

Conservative buyers focused on wealth preservation and predictable income streams are particularly fond of these single-tenant properties. Sales of drugstore properties jumped 10% from the first quarter of 2010 to the first quarter of 2011, according to Marcus & Millichap Real Estate Investment Services. The median price of drugstores climbed 3% to $334 per sq. ft. during the same period.

Cap-rate compression for the segment has been considerable, with yields falling 80 basis points in the past year to an average of 7.3%. Competition for the short supply of these highly coveted assets is expected to remain intense.

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