The Future of Drugstore Real Estate

Last week Amazon announced plans to launch Amazon Pharmacy, an online and mobile prescription medication ordering and fulfillment service that takes direct aim at large retail pharmacy chains such as CVS Health and Walgreens.

The launch was not unexpected – Amazon purchased prescription medicine delivery service Pillpack in 2018 and had been rumored to be planning a more significant foray into the space.

But now that Amazon Pharmacy is officially coming, what does it mean for the real estate occupied by 25,000+ drugstores in the U.S.?

Drugstores are practically a fixture at key road intersections throughout the country.  CVS and Walgreens premised their real estate models on building and occupying freestanding corner stores on streets with the most traffic flow – the “main and main” location – in urban areas, suburbs and even in many small towns throughout the country.  

Most drugstores are modern, freestanding buildings that feature prominent visibility, excellent vehicular access, and dedicated parking. At roughly 10,000 – 15,000 square feet on average, drugstores are much smaller than the cavernous “Big Box” real estate found in large suburban shopping centers and can more easily accommodate a variety of other uses.  

Also, many U.S. drugstores offer a drive-thru pickup window – a key convenience benefit that has taken on even greater importance during the COVID-19 pandemic for not only pharmacies but also for restaurants, retailers and health service providers. 

Finally, drugstores represent some of the most accessible real estate to the U.S. population. Approximately 82% of Americans live within 10 miles of a CVS Pharmacy and over 75% live within 5 miles of both a CVS and a Walgreens store.   

To put this in perspective, CVS and Walgreens each operate nearly three times the number of stores as there are Walmart Supercenters in the U.S. (which, by the way, also offer pharmacy services).

To be sure, the entry of Amazon into the pharmacy business is not going to eliminate the need for drugstore real estate. In fact, CVS, Walgreens and Rite Aid, the third largest player in the retail pharmacy space, have been aggressively modifying their real estate offerings to provide more services than just filling prescriptions and selling consumables.

CVS, which acquired the health insurer Aetna in 2018, has transitioned over 1,000 of its stores into “HealthHUBS” – a real estate concept that dedicates nearly 20% of floor area to offering health services such as MinuteClinic convenience care clinics for blood testing and health screenings.   

Rite Aid is spending over $700 million to redesign its stores, adding virtual care rooms to conduct telehealth services, and plans to provide a product assortment that includes both traditional medicines and alternative remedies. And Walgreens has rolled out a new “small format” real estate concept that shrinks its square footage by roughly 75% and focuses exclusively on pharmacy.

But despite finding other ways to use their real estate, the major U.S. pharmacy chains are still expected to close many drugstores in the coming years, making available a large amount of well-located real estate for adaptive re-use.

So what are the likely future uses for (and who are the potential users of) drugstore real estate?

1)    Dollar Stores – there are more dollar stores than pharmacies in the U.S. – more than 30,000 in total – and it is one of the fastest growing categories in retail. The two largest dollar store chains, Dollar Tree and Dollar General, widely embrace a store format that is similar in size to drugstores and both target the dense neighborhoods and “main and main” small town locations previously favored by drugstores. In fact, the major dollar store chains already occupy hundreds – perhaps thousands – of previously closed drugstores throughout the country.   

2)    Pet Supply Stores and Services – the pet supplies industry is booming in the U.S. – a $50 Billion market that is expected to reach nearly $64 Billion in 2024. Fast growing regional chains such as Pet Supplies Plus and Feeders Supply not only sell pet food and supplies but have differentiated from Big Box and online competitors by offering veterinary, grooming, pet adoption and other services that draw consistent traffic and thrive in the size, format and neighborhood sites that closely matches the real estate profile of drugstores. Expect to see more of these conversions in the future.

3)    Health Care – The major pharmacy chains are not only the only ones repurposing drugstores to offer health care uses – as many closed drugstores are being converted into a urgent care clinics, medical practices and even plasma collection centers.  IHA, one of the largest multi-specialty medical groups in Michigan, has converted several former Walgreens into medical service outpatient facilities.  Oak Street Health, which offers provides health care services to senior citizens on Medicare, has utilized former drugstores for roughly 20% of its 60+ sites nationwide. And major plasma donation firms such as Grifols, Biomat and CSL Plasma all operate out some of their plasma collection centers in converted drugstore properties. 

4)    Multi-tenant Developments – while most former drugstores have been repurposed for a single tenant use, there are also examples of multi-tenant adaptive reuse. For instance, a former Rite Aid in Cahawba Heights, Alabama was recently renovated and subdivided into a multi-tenant building that includes a restaurant (which utilizes the former drugstore’s drive-thru window), an urgent care, and a to-be-determined retail use.  

Unlike the single use backfills of former drugstores (which still closely resemble the look of the former operator), this multi-tenant re-use design resulted in significant exterior modifications such as glass panels on the front fa?ade, a metal grid sign attachment, and gray columns that distinguish the property from its use as a former drugstore.

5)    Other – many non-traditional uses are also emerging to replace former drugstore real estate. Some drugstores are being razed entirely – as the land itself is attractive for new developments. Other former drugstores are being repurposed for unique uses, one example of which is a former Walgreens in Staten Island, NY that is now home to a Harley Davidson dealership.

The bottom line: the entry of Amazon into the pharmacy space is expected to lead to a shake up in the retail pharmacy business – and while existing pharmacy operators have been reformatting their real estate to stay relevant, it is anticipated that thousands of drugstores may still close in the coming years. 

The good news is that the excellent locations, functional relevance, and proximity of these drugstore properties to attractive population and demographics will lead to many exciting adaptive re-use opportunities for other users.