by Dan Rafter
Seeing more Walgreens and CVS stores in your neighborhood? You’re not alone. The number of chain drug stores across the Midwest and the country continues to rise, according to the most recent national net lease drug store research report by Northbrook, Ill.-based The Boulder Group.
According to the report, Walgreens now has 8,582 drug stores across the nation, while CVS boasts 7,553. Rite Aid, the third major drug-store player, has 4,623 stores across the country.
And these numbers will rise in 2014. The Boulder Group says that Walgreens will add 150 stores in 2014, while CVS plans to add the same number.
According to the report, new-construction Walgreens and CVS properties attract the most attention from investors because they are two of the few net lease products that offer leases of more than 20 years.
There’s another interesting trend, too. The Boulder Group says that cap rates for new-construction drug stores are near all-time lows, with the median asking cap rates for Walgreens stores at 5.75 percent in the third quarter of 2013, at 6.07 percent for CVS and 8 percent for Rite Aid. All of these cap rates have fallen since the fourth quarter of 2012, with cap rates dropping 65 basis points for Walgreens, 53 for CVS and 100 for Rite Aid.
Some investors, becaus of these low cap rates, are also sinking their dollars into older drug store assets as a way to increase their yield, according to The Boulder Group report. During the third quarter of 2013, drug store properties built before 2007 accounted for 58 percent of all drug store transactions. That’s an increase of 10 percent compared to the third quarter of 2012.
Investors will have plenty of opportunities to place their dollars in drug stores. According to The Boulder Group, there were 156 Walgreens on the market in the third quarter of 2013, an increase of 81.4 percent from the fourth quarter of 2012. There were 44 CVS stores on the market during the third quarter, an increase of 46.7 percent compared with the fourth quarter of 2012, and 30 Rite Aid locations, up 21.1 percent from the fourth quarter of 2012.