The US is facing a drugstore graveyard as stores close. Filling the leftover spaces is the next challenge.

• Drugstores person agelong been viewed arsenic unchangeable and salient tenants successful US shopping centers.
• As awesome drugstore chains denote shop closures, thousands of storefronts are emptying out.
• The spaces tin beryllium vacant, though landlords are incentivized to capable nan "junior box" locations.

America's unit drugstore giants are undergoing an uncomfortable play of decline, with their convenience successful question.

For years, landlords viewed drugstores arsenic unchangeable tenants successful shopping centers since shoppers relied connected them for prescriptions.

That made them charismatic fits for salient storefronts, including arsenic an anchor tenant for mini shopping centers, said Steven Teitelbaum, a professorial teacher astatine American University's Kogod School of Business who antecedently practiced commercialized existent property rule astatine Jones Day.

Known successful nan manufacture arsenic a "junior box" — arsenic opposed to a large container store, for illustration Walmart aliases Target — these 20,000 square-foot formats were often purpose-built to support pharmacies' dual business of dispensing medicine successful nan backmost and snacks successful nan front.

Many are now expected to adjacent — thousands complete nan adjacent respective years crossed CVS, Walgreens, and Rite Aid. Walgreens CEO Tim Wentworth said past summertime that nan unit drugstore manufacture was "largely overbuilt for wherever nan early was going to be."

The pullback raises nan question: What happens to nan leftover spaces?

Walgreens told BI nan institution useful pinch organization stakeholders to minimize nan disruption to customers erstwhile a shop is group to close.

"When we do adjacent a shop that has a lease word remaining, we research respective options, including buyouts, subleases, and renegotiating nan rate. Maintaining nan lease without occupancy is our action of past resort," nan spokesperson said. "More often than not, we successfully find a caller tenant which is beneficial to our business, consumers, and nan community."

In cases wherever leases of closing stores dictate that drugstores person to support paying rent, immoderate landlords whitethorn opt to time off nan spaces empty, particularly successful downtowns and different dense municipality environments, Teitelbaum told BI. In different cases, specified arsenic erstwhile a drugstore closes successful a suburban shopping center, nan nonaccomplishment of a drugstore tin mean a driblet successful shoppers visiting nan area, he added.

"They thin to person bully locations connected corners and arsenic nan anchor tenants successful mini shopping centers, truthful erstwhile they close, it's an obvious, in-your-face phenomenon," Teitelbaum said.

That tin effect different businesses successful nan shopping center, which often trust connected anchor tenants for illustration drugstores and supermarkets to tie group in, he added. The nonaccomplishment of ft postulation tin person a antagonistic ripple effect connected nan landlord, moreover if rent payments for nan closed shop continue.

It's not ever evident what could slot into nan leftover abstraction — but companies spot opportunities successful nan locations.

Walgreens' CEO besides said connected nan company's third-quarter net telephone that Walgreens locations are "widely acknowledged to beryllium connected nan champion corners successful America."

"We judge there's nan opportunity to not simply transportation nan lease arsenic a acheronian store," he said. "There's golden successful them hills, arsenic they say."

US unit vacancy rates are astatine historical lows of astir 4%, according to data from spot guidance elephantine Colliers, and asking rents are nudging higher arsenic prospective tenants compete for space.

"When you person a inferior box, that is for illustration golden to a landlord," Anjee Solanki, Colliers' caput of unit services, told BI.

Solanki said she sees a wide scope of post-pharmacy uses for nan format, from sporting equipment and furnishings to apparel and beauty. Some landlords are subdividing larger units to connection abstraction to a operation of smaller businesses.

"There's conscionable truthful galore astonishing concepts retired there," she said.

Some of nan existent property finance trusts, aliases REITs, that are landlords for nan drugstore chains spot different imaginable uses for nan spaces.

"They're bully spots for urgent cares," John Albright, CEO of Alpine Income Property Trust, a REIT that counts Walgreens arsenic a tenant, said connected an net telephone successful July. Other imaginable tenants see fast-casual restaurants, dollar stores, and schools, Albright said.

Teitelbaum told BI that nary azygous type of tenant is apt to return up astir of nan quiet storefronts. Many imaginable unit tenants, specified arsenic market stores, request much parking and different accommodations for their precocious ft postulation comparative to pharmacies. Others, specified arsenic restaurants, would require kitchens and different costly renovations.

"They person ranges of sizes and formats, and you can't conscionable say, 'Well, we'll conscionable person them each to pickleball courts aliases urgent care,'" he said.

A CVS spokesperson said 95% of nan company's closing locations are leased, while 5% are owned.

"We make each effort to marketplace disposable properties and find caller tenants arsenic soon arsenic possible. In astir instances, we sublease to different tenants to guarantee nan spot is utilized and contributing to nan community," nan CVS spokesperson said.

A Rite Aid spokesperson said that nan institution routinely evaluates its shop web and is "committed to becoming financially and operationally healthy."

Compared to galore of nan store closings past decade, galore of nan closures are occurring successful a much orderly manner and coming onto nan spot marketplace astatine a gait that allows them to beryllium absorbed successful a reasonable play of time.

In addition, Colliers' Solanki said nan gauntlet of nan pandemic has forged a stronger narration betwixt retailers and landlords to activity together.

Where a normal lease renewal speech mightiness person occurred wrong a twelvemonth of nan contract's expiration, those agreements are being reached pinch 24 to 30 months of lead time, giving nan parties progressive clip to plan, she added.

Solanki besides said half of unit existent property deals tracked by Colliers past 4th were connected nan marketplace for little than 3 months. It indicates that while unit pharmacies person been criticized for failing to connection thing caller and exciting for US shoppers, their early replacements are consenting to stake they tin usage nan locations to do conscionable that.

"That 50% is simply a beardown number," Solanki said.