NORTHBROOK, IL-For investors looking to park money in the net lease market, drug stores are what’s doing the most brisk amount of trade, according to a recent report by the locally based Boulder Group. With 20-to-25-year leases and at least a couple of strong credit tenants in Deerfield, IL-based Walgreens and Woonsocket, RI-based CVS, as well as a drop in new store development, drug stores have been a hot commodity.

Randy Blankstein, president of Boulder, tells GlobeSt.com that the median asking cap rate for the single tenant, net-leased drug store sector compressed by 11 basis points from the first quarter to the second quarter. Cap rates for Walgreens stores, typically selling at about $5.5 million, are at 6.8%, while cap rates for CVS store, which average $3.9 million, are at $6.9%.

Camp Hill, PA-based Rite Aid, the third largest drug store chain, is seeing stores trade at a 9.23% cap rate and an average $2.8 million, Blankstein says. The smaller chain is seeing some renewed interest from investors, but is not seen as a strong credit-worthy tenant, he says.

Both Walgreens and CVS have decreased their annual store development count by about 10%, fueling the supply-demand offset, Blankstein says. Walgreens, with 7,715 stores, will see 208 new locations this year, while CVS, with 7,266 stores, will see about 238 stores.

The drop in construction takes away from the properties offered for sale, Blankstein says. “Typically the drug stores are purchased right after they’re built,” he says. “The limited supply is affecting the cap rate compression. Investors are looking for a flight to safety, and these properties make a lot of sense. They’re passive and stable, and lending is readily available at long-term financing.”

Instant Insights /

Walgreens, CVS Trade at Premium in Net Lease Market

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