Pharmacy Closures Reshape the Retail Landscape as Opportunities Emerge

Big Pharmacy Chains Swallow a Bitter Pill: Store Closures

As the annual round of sniffles and chorus of coughs begins to circulate, many find themselves reaching for their car keys, ready to make a quick run to the local pharmacy for some much-needed cough drops. Upon arrival, they're met with an unexpected sight – shuttered doors and empty windows. It's a tough pill to swallow for consumers and some of America's biggest pharmacy chains alike.

Chain pharmacy closures are most frequent in the northeast and eastern Midwest

According to the most recent announcements, CVS is planning to shutter 900 stores, while Walgreens is set to close 1,200 locations. Rite Aid has taken the biggest hit, slashing its store count by 60% since 2019. What's behind this prescription? Closures are driven by various factors, including decreasing reimbursements for medications, workforce shortages, and intense competition from online retailers and grocery stores.

A Bandage Solution for Low Retail Availabilities

While closures spell trouble for pharmacies, retail tenants hunting for space might find these closures to be the perfect remedy for their expansion needs in a market hungry for spaces. Retail space availability is actually 210 basis points below its historical average. Not only that, but there are few new builds on the horizon with construction starts remaining at record lows due to prohibitively high costs, making new retail space as scarce as a pharmacy without a queue.

Further demonstrating demand for retail space, we're seeing the strongest retail rent growth since the 2008 recession. When tenants move out, landlords are cashing in with rent hikes as high as 32% above what they were charging 10 years ago.

Pharmacy Closures Offer Retailers a Dose of Opportunity

The pharmacy closures could be just what the doctor ordered for retailers hungry for space, despite the unique layouts these pill shops leave behind. Who's filling this retail prescription? It's a diverse mix:

1. Dollar Tree has already scooped up 300 previous Walgreens locations
2. Health clinics are seeing these spaces as just what the doctor ordered
3. Veterinary and pet stores are sniffing out opportunities
4. Pickleball ventures are volleying for position
5. Niche grocers like Lidl and Trader Joe's are browsing the aisles

While some businesses have already cracked the code on repurposing these unique layouts, there's more to come. A variety of retailers have announced significant openings, which have a similar size as the average pharmacy.

As the dust settles on this retail transformation, it's clear that the pharmacy closures are more than just a bitter pill for the industry. They're creating a new prescription for growth and innovation in the retail real estate sector. It's a reminder that in business, as in health, adaptation is the key to longevity.