CHICAGO—Reversing a long-term trend, cap rates for single tenant CVS, Rite Aid and Walgreens properties all increased significantly in the third quarter of 2016, according to a new report by the Boulder Group, a net lease firm in suburban Chicago. Investors seem most concerned by US antitrust regulators' requirement that Walgreens sell between 500 and 1,000 stores before they will approve its plan to acquire Rite Aid.

Cap rates for the net lease drug store sector increased by 33 bps to a 5.96% cap rate when compared to last year, Boulder found. Rite Aid and Walgreens cap rates went up 30 and 37 bps each. In the same timeframe, CVS cap rates increased by 25 bps.

The potential merger of the two retail giants has also slowed transaction volume in drug store sector as investors wait to see how it plays out. But drug store assets in core markets with strong sales performance remain attractive. Still, concern about the merger has caused the cap rate premiums associated with the drug store sector to decrease. In the third quarter of 2016, the spread between the overall net lease retail market and the drug store sector compressed to 14 bps. “This spread has historically been greater and in the past three years the spread ranged from 62 to 100 bps,” Boulder said.