Pharmacies continue to be a highly desired asset among net leaseinvestors. With CVS & Walgreens leading the way, cap rates forpharmacies continues to compress. The investment grade credit ofpremier tenants (Walgreens and CVS), long leases and quality realestate makes pharmacies an ideal investment option. As such, caprates are lower than the net lease retail average. A lack of newsupply in the market has also affected pharmacies with investorswilling to pay premiums for a dwindling pool of assets.
Though there has been some talk of increasing interest ratesforcing cap rates upward – the reality is cap rates have continuedto compress. Though interest rates are incrementally rising - theystill remain at historic lows compared to the previous market highin 2006. As a result, it still makes sense for transactions totrade at bold low rates.
Among Walgreens and CVS transactions themselves, we can see adefinite preference for long leases – 15 years or more. Theseinvestments on average demanded much lower cap rates – with averageWalgreens cap rates at 6.17% compared to 5.76% for deals with 15+years on the lease. CVS transactions saw similar cap rate spreads –a 6.30% average compared to 5.88% for 15+ plus years on the lease.In today's market risk adverse properties still demand a premiumfrom investors.
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