Amazon's Online Pharmacy Targets Popular Net Lease Segment
Updated: Nov 11, 2021
Through the pandemic, pharmacies have been an e-commerce resistant segment of the real estate market. But that could be changing with a new announcement from Amazon.
The e-commerce giant announced the launch of a new store, called Amazon Pharmacy, which will allow customers to complete an entire pharmacy transaction on their desktop or mobile device through the Amazon App. The platform will enable customers to add their insurance information, manage prescriptions and choose payment options before checking out. Prime members will receive unlimited, free two-day delivery on orders from Amazon Pharmacy included with their membership.
Prime members will also be able to access savings on medications at Amazon Pharmacy when paying without insurance and at over 50,000 other participating pharmacies nationwide. Separately, Amazon offers PillPack, which provides pre-sorted dose packaging.
“Having bought PillPack in 2018 for roughly $750 million, it is no surprise today that Amazon announced its intent to enter into the prescription drug market,” Jonathan W. Hipp, principal, US Capital Markets and head of U.S. Net Lease Group at Avison Young told GlobeSt.com. “Based on Amazon’s success in growing the online grocery business with the acquisition of Whole Foods and launching a delivery model being copied by all, Amazon expects to generate revenue upwards of $130 billion by 2025.”
In the short term, Hipp doesn’t see a significant impact on the pharmacy sector in net lease.
“However, 2020 has seen many market disruptors, and firms will continually need to adapt to new market conditions to succeed,’ Hipp told GlobeSt.com. “No doubt, CVS Pharmacy and Walgreens have taken note of this giant’s move and will need to be flexible with their strategies moving forward. I am confident though that of all sectors in net lease, this one will remain strong.”
From a dollar volume, drug stores have been one of the most popular sectors in net lease since the pandemic began, according to the NNN Market Intelligence Report from Chris Pappas, associate director with Marcus & Millichap’s Net Lease Division. National asking cap rates in the single-tenant drug store sector increased to 6.4% in the third quarter, according to The Boulder Group’s Net Lease Drug Store Report. This represented a 17-basis point increase when compared to the prior year.
However, the increase in cap rates for the drug store sector was driven by a shorter average remaining lease term, which dropped to 10 years in the third quarter.
“If you group drug stores with similar lease terms together, cap rates are down slightly, Randy Blankstein, president of the Boulder Group, told GlobeSt.com in an earlier interview. “Among the ones that have traded, cap rates have gone up because shorter-term [leases] can trade. People see the cap rates going down and they think this is a good time to sell.”