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Andrew Kelly/Reuters
- Drugstores have traditionally been seen as reliable and significant tenants in American shopping centers.
- The announcement of store closures by major pharmacy chains is leading to a surge in vacant storefronts.
- While some spaces may remain unoccupied, landlords are motivated to fill these “junior box” locations.
The retail pharmacy sector in the United States is currently facing a challenging decline, raising questions about its convenience and relevance.
For many years, landlords considered drugstores as dependable tenants within shopping centers due to their essential role in providing prescriptions. This reliability made them ideal candidates for prominent storefronts and even anchor positions within smaller shopping complexes, according to Steven Teitelbaum, a professorial lecturer at American University’s Kogod School of Business and former commercial real estate attorney at Jones Day.
These establishments are often referred to as “junior boxes,” distinguishing them from larger retailers like Walmart or Target. Typically spanning around 20,000 square feet, these spaces were designed specifically for pharmacies that combine medication dispensing with convenience items like snacks.
A significant number of these stores are anticipated to close—thousands across CVS, Walgreens, and Rite Aid over the coming years. Walgreens CEO Tim Wentworth stated last summer that the retail pharmacy landscape was “largely overbuilt for future needs.”
This contraction prompts an important question: What will happen to the vacant spaces left behind?
In response to store closures, Walgreens has indicated that it collaborates with community stakeholders to mitigate customer disruption. A company spokesperson noted: “When we close a store with an active lease term remaining, we explore various options such as buyouts or subleases while renegotiating rental rates. Maintaining an empty lease is our last resort; more often than not we successfully find new tenants which benefits our business model along with consumers and local communities.”
If leases require continued rent payments after closure—especially common in urban areas—some landlords might choose not to fill those vacancies immediately. In suburban settings where drugstore closures occur within shopping centers, this can lead directly to decreased foot traffic affecting surrounding businesses reliant on those anchor stores for customer draw.
The potential uses for these empty spaces aren’t always clear-cut; however many companies see opportunities arising from them. Wentworth also mentioned during Walgreens’ third-quarter earnings call that their locations are recognized as being situated on some of America’s best corners.
According to data from Colliers—a leading property management firm—the current retail vacancy rate stands at approximately 4%, marking historic lows while asking rents continue rising due largely because prospective tenants compete fiercely over available space.
Certain real estate investment trusts (REITs) managing drugstore properties also recognize alternative uses emerging within vacated areas: “They’re excellent spots suitable for urgent care facilities,” said John Albright CEO Alpine Income Property Trust—a REIT housing Walgreens among its portfolio—during July’s earnings call adding fast-casual dining options dollar stores schools could fit well too!
Diverse Opportunities Ahead
No Single Solution Fits All Vacancies
Teitelbaum emphasized no single type tenant will dominate occupancy across all emptied storefronts since various retailers such grocery chains require additional parking amenities compared against pharmacies while restaurants necessitate costly renovations involving kitchens etc.
A CVS representative confirmed 95% of their closing sites remain leased whereas only 5% belong outright owned by them stating they strive diligently market available properties swiftly finding new occupants whenever possible ensuring continued community contributions through subleasing arrangements.
Meanwhile Rite Aid maintains commitment evaluating its network regularly aiming achieve financial operational healthiness moving forward.
Unlike previous waves closings witnessed throughout past decade recent shutdowns appear more orderly allowing gradual absorption back into marketplace without overwhelming supply issues arising previously experienced downturn periods.
Furthermore Solanki noted pandemic challenges fostered stronger partnerships between retailers landlord entities facilitating smoother negotiations regarding lease renewals now occurring earlier than before giving ample time plan ahead effectively!
Half tracked deals last quarter reported under three months market presence indicating although criticism surrounds traditional pharmacies lacking innovation excitement newer replacements optimistic utilizing existing infrastructures creatively!
“That fifty percent figure represents robust activity!” she concluded confidently.
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