Cap rates for the single-tenant drugstore sector increased by 11 basis points in the third quarter of 2018 to 6.21 percent over last year. Cap rates for CVS properties remained unchanged, at 5.65 percent, while Walgreens and Rite Aid properties experienced increases of 15 and 7 basis points to 6.15 percent and 7.32 percent, respectively.
The increase in cap rates experienced by Walgreens and Rite Aid properties can be best attributed to uncertainty surrounding Rite Aid’s long-term viability and the store closures associated with Walgreens’ acquisition of approximately 1,900 Rite Aid locations.
Transaction volume in the drugstore sector slowed significantly in the first three quarters of 2018 and was down more than 40 percent as compared to each individual year between 2013 and 2017. Recent events in the drugstore sector— including the pending CVS and Aetna merger, Walgreens acquisition of approximately 1,900 Rite Aid stores and the failed merger between Rite Aid and Albertsons—caused concern for investors.
The spread between asking and closed cap rates for drugstores widened for all three tenants in the third quarter of 2018 as compared to the prior year. This illustrates pushback sellers are receiving for drugstore valuations from net-lease investors.
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Why Is Drugstore Transaction Volume Plunging?
