The rent outlook


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What impact is the pandemic having on pharmacy rents? Phil Chapman gives the latest developments, and casts his eyes to the future 

The half-way mark of the government’s original pandemic period has been reached and for the most part we are seeing businesses that were grossly affected reopening.

When reviewing what we might expect in the post Covid-19 economy for community pharmacy, we can see that the majority of community pharmacies have remained resilient, and certainly evidenced their vital role as an essential health and public service.

Pharmacies of concern

The areas of concern where trading performance has been grossly affected is for those pharmacies located in CBD and tourist areas.

These pharmacies are at the direct mercy of the slow return to normal:

  • For CBD pharmacies, the new norm of office workers continuing in some part to work remotely and as well as the lack of international students and travellers will take several months before their numbers start to recover.
  • Similarly, in tourist areas, the reliance on domestic tourism to fill the void of international (and interstate) travellers is an expectation that needs to play out over the next few months.

For these pharmacies there is a long road to recovery and support for these areas is needed not only from government, but also from suppliers and landlords.

The agreement impact

On a different note, the signing of the 7CPA, which included an increase and indexation on dispensing fees, appears to have provided the certainty the sector needed to be able to adequately complete forward projections and business planning.

We have seen quite a number of pharmacists who were holding off on entering into lease renewals until they could reasonably project their returns for the next few years.

Feedback from financiers was also positive, noting that lending covenant reviews are due in this quarter.

There will still remain challenges with reduced passing traffic due to social distancing and consumers having embraced online shopping. Also there are the added costs imposed over the pandemic to date in the stock levels required to carry for medicine shortages, and extra wages for cleaning and home delivery.

Changing habits

Pharmacy needs to pivot on some old traditions such as trading hours to best manage their roster and educate patients towards these changes, as well as other areas, as the new economy, post-pandemic, will see everyone tighten their belts.

One simple area of saving is seeking to have next year’s annual rent review waived by the landlord to keep occupancy costs in check. Establishing that relationship, and having these conversations as early as possible is now more important than ever.

Phil Chapman is the Director/Founder of Lease1 MiLease, pharmacy leasing specialists.

 

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