Pharmacy NNN Properties for Sale
The U.S. healthcare industry is often referred to as “recession-proof,” and since 2020, has also proven to be “pandemic-proof.” Why? Even when the economy is suffering, people still need their prescriptions, personal care items, and other must-have merchandise that pharmacies and other healthcare storefronts sell.
An economic downturn has no bearing on people’s healthcare needs, so pharmacies and hospitals continue to thrive even when times are tough. That’s a big part of the draw of pharmacy tenants for triple net lease commercial real estate investments. Combining prime real estate with recession-resistant success, pharmacy tenants are highly attractive.
Pharmacy NNN Properties Overview
One of the most compelling elements of a pharmacy as a NNN lease tenant is the prime locations that these stores tend to prefer. Most pharmacies will pursue hard-corner locations with prime visibility, large parking lots, and easy ingress and egress.
America’s baby boomer population is aging, meaning that the country is home to more and more senior citizens. This has led to strong financial results for pharmacies across the nation. For example, CVS has been profiting from the aging population by expanding its retail pharmacy operations sector. Its statistical sales now clock in at around $840 per square foot.
Due to their recession-resistant nature and consistent clientele, pharmacy net leases are usually considered to be lower risk. They offer marketable value, and many are backed by a corporate guarantee. This makes the pharmaceutical sector a promising investment for any commercial real estate investor.
| Pharmacy Triple Net Properties Overview | |
| Well-known tenants | Walgreens, CVS, Rite Aid |
| Number of U.S. business entities | 44,900 |
| Average NNN lease property cost | $4,500,000 |
| Average cap rate | 5.8% |
| Typical lease term | 15 - 25 years (varies by tenant) |
| Average lot size | 1.0 - 2.0 acres |
| Typical location | Urban and suburban hard-corner locations |
Common Pharmacy NNN Lease Tenants
Some of the most common pharmacy NNN lease tenants include CVS, Walgreens, and Rite Aid. CVS and Walgreens are the primary drivers of trends in this sector, as they both have nearly three times the stores that Rite Aid has. In 2021, Walgreens reported $41 billion in revenue, CVS reported $111 billion, and Rite Aid reported just $760 million.
These three primary tenants have similar requirements in terms of location. All of them look for hard-corner locations in urban and suburban areas. They prefer to have plenty of parking (sometimes with room for a prescription pick-up drive-thru lane), easy ingress and egress, and proximity to high-traffic retail corridors.
How to Evaluate a Pharmacy Net Lease for Sale
It’s important to examine both property value and tenant strength when considering an NNN lease. Especially when you’re reviewing single-tenant properties, like the ones many drugstore and pharmacy tenants prefer, your tenant concentration can be only either 100% or 0%. That means you’ll be generating 100% of your potential cash flow or none of it.
In order to raise the odds that your pharmacy NNN lease pans out, you’ll want to ensure that the property you choose meets the qualifications that these tenants prefer in their locations – high-visibility corner locations with parking lots and plenty of access. Meeting these criteria will help ensure that your property stays occupied and you continue generating revenue.
This is especially important because of the unique nature of these properties. Because of their large sizes, pharmacy buildings can be extremely hard to fill should the tenant move out. With that in mind, you want to select a high-traffic location where the store will thrive.
On the plus side, pharmacy NNN lease tenants normally large companies with strong balance sheets, so you can count on your payments arriving on time each month. You won’t have to waste time chasing down your tenant to get your hands on the next check.
What Makes Pharmacy an Attractive Industry for NNN Leases?
There are 44,900 pharmacies and drug stores in the U.S. as of 2023, a year-over-year increase of 3.5% – in other words, the industry is booming. Unlike many other industries, drugstores and pharmacies were actually positively affected by COVID-19. Pharmacies witnessed a positive impact on demand amid the pandemic, and their growth only continues.
The size of the U.S. pharmacy market in 2020 was $534.21 billion, and it is projected to grow from there, reaching $861.67 billion by 2028 at a compound annual growth rate (CAGR) of 6.3%. That growth rate tops even the rate of 5.8% seen during the pandemic, indicating that these upward trends in the pharmacy industry are here to stay.
How Do Pharmacy NNN Properties Compare to Other Industries?
Pharmacy NNN properties are a highly attractive option for commercial real estate investors because they combine a number of key factors that take these opportunities from good to great. First off, pharmacy tenants tend to prefer A-grade real estate, including hard-corner locations on heavily trafficked retail corridors, similar to gas stations.
These are prime spots that will help the tenant succeed and will keep them renting from you for years to come. Of course, the flip side here is that pharmacy tenants typically look for large buildings with a pretty specific footprint, meaning that if the tenant does move out, it may be difficult to find another one to fill the space.
The other key factor that makes pharmacy NNN properties stand out is the growth and success seen in the pharmacy industry as a whole. With an aging U.S. population and boosted healthcare awareness in the wake of the COVID-19 pandemic, the pharmacy industry is set to continue on a promising path for the foreseeable future.
From a commercial real estate investment perspective, this is good news because tenant success leads to continued occupancy and ongoing revenue for you. Plus, the retail pharmacy industry has shown itself to be resistant to the Amazon boom, and its brick-and-mortar real estate continues to shine.
