Net lease properties have long been a staple in the commercial real estate (CRE) market, offering investors a reliable income stream with minimal management responsibilities. Among these, net lease drugstores stand out as a particularly robust investment option, thanks to their stable demand, essential services, and prominent corporate-backed leases. As the demand for healthcare-related services grows, understanding the essentials of investing in net lease drugstores is crucial for anyone looking to capitalize on this sector. Here’s a closer look at why these assets are highly sought after and what makes them a promising addition to an investment portfolio.
The Stability of Net Lease Drugstores
Drugstores fulfill an essential role in communities by providing health and wellness products, prescription medications, and increasingly, clinical services such as vaccinations and testing. This shift toward becoming community healthcare hubs has strengthened drugstores’ standing as “essential businesses,” particularly highlighted during the COVID-19 pandemic. Major drugstore chains such as CVS, Walgreens, and Rite Aid continued to operate when other retailers faced restrictions, underscoring their resilience in downturns and making them reliable tenants.
For net lease investors, drugstores represent a low-risk profile, given their continuous operations and consistent revenue streams. The stability of drugstores’ cash flow has cemented them as dependable options in the net lease space.
Key Advantages of Net Lease Drugstores
- Long-Term Leases and Credit-Backed Tenants
One of the core strengths of net lease drugstores lies in their long-term leases, often spanning 10 to 20 years. Leases are typically structured as triple-net (NNN), meaning that tenants are responsible for property taxes, insurance, and maintenance costs. This minimizes landlord responsibilities, ensuring that investors receive passive income without the usual property management burdens.Additionally, drugstore chains like CVS and Walgreens are often credit-backed tenants, meaning their leases are backed by the financial stability of large corporations. This reduces risk and increases the attractiveness of net lease drugstores as long-term, low-risk investments. - Prime Locations and High Visibility
Drugstores typically occupy prime real estate in high-traffic areas such as major intersections and close to residential neighborhoods, providing high visibility and easy accessibility for customers. These well-located properties benefit from steady foot traffic, which contributes to the stability of their revenue streams. Moreover, the locations themselves hold intrinsic value, as the land alone is often highly desirable, especially in growing suburban areas. - Resilience Against Economic Cycles
Unlike retail spaces that are more vulnerable to economic shifts, drugstores provide essential services, which makes them less affected by economic downturns. Even as e-commerce continues to impact retail, drugstores have adapted by offering services that require physical visits, such as vaccinations, health screenings, and in-store consultations. This adaptability helps net lease drugstores remain relevant and profitable even as retail trends evolve.
Growing Demand for Health and Wellness Services
The demand for health and wellness services is steadily increasing as consumers become more health-conscious and as aging populations require greater access to healthcare. Drugstores are evolving into healthcare destinations, adding services that cater to preventative care and wellness. From in-store clinics to telehealth services, drugstores are expanding beyond traditional pharmacy offerings to meet a broader range of healthcare needs.
For investors, this shift provides added security: drugstores are becoming indispensable assets within communities. This trend shows no sign of slowing, and the demand for healthcare-oriented locations is expected to rise, further increasing the value and stability of net lease drugstore properties.
Key Considerations for Investing in Net Lease Drugstores
Investing in net lease drugstores involves certain considerations to maximize returns and minimize risks:
- Lease Terms and Rent Escalations
Investors should evaluate lease terms, especially concerning rent escalations. Annual or periodic rent increases can enhance cash flow and offer a hedge against inflation, which is particularly advantageous in long-term leases that might otherwise stagnate without escalations. - Tenant Creditworthiness
Assessing the creditworthiness of the tenant is crucial to ensuring consistent rental income. The financial stability of large corporations like CVS and Walgreens provides assurance that rent payments will be reliable, making credit-backed leases highly desirable. - Location Quality
While drugstores are generally located in prime, high-traffic areas, investors should examine the surrounding neighborhood and any changes that could affect property value. Proximity to residential areas, hospitals, and other community hubs adds value to these properties and increases their desirability. - Future Proofing
Investors should consider how the property may adapt to future changes in healthcare. Drugstores are increasingly adopting technology, such as mobile apps and telehealth options, to stay relevant. Evaluating a drugstore’s flexibility to incorporate these changes can further enhance its viability as a long-term investment.
The Future of Net Lease Drugstores
As healthcare trends shift and demand for localized services rises, the role of drugstores within communities is likely to grow even further. Drugstores are expected to continue expanding their healthcare services, including diagnostics, virtual health consultations, and preventive care offerings. This expansion provides multiple layers of security for investors, as drugstores become integral to both the healthcare and retail ecosystems.
For investors looking to diversify their portfolios with resilient, income-generating assets, net lease drugstores offer an ideal solution. With strong corporate backing, essential services, and promising growth in health-related offerings, net lease drugstores represent a stable, long-term investment that meets today’s and tomorrow’s needs.