Natalie Sirianni gives the latest on what’s hot, and what’s not, in the pharmacy real estate market
In general, the pharmacy market is very strong at the current time and pharmacy businesses are selling well.
However, the saleability of a particular pharmacy is impacted by a number of characteristics. So, what’s attractive to pharmacy buyers in the current market?
- Low Rent
Pharmacy buyers in general are staying away from and are hesitant to buy into high rent sites. Pharmacies with below 4% rent to turnover ratio are very attractive to the market. Sites with around 6% to 8% rent to turnover ratio will be considered by the market and their attractiveness will depend on a number of other factors such as growth and opportunity. Once you start getting above 10% rent to turnover ratio, the pharmacy becomes less attractive to the market. Especially if the lease also stipulates high rental reviews each year. If you are in a site with high rental levels, we recommend you aim to achieve a rent reduction on your pharmacy prior to going to market. If you are lucky enough to have low rent pharmacy, this will be attractive to potential buyers.
- High Growth
Pharmacies that are achieving good growth are always attractive to the market. The reason for this is that if the pharmacy business is achieving growth, then the purchaser can afford to pay a little more for it, as they know the business will grow and be worth more in the future than it is now. Buyers are prepared to pay for some upside. It is important to note that while sales growth is important, the most important thing is profit growth! If the business is achieving great sales growth by discounting significantly, you might find that the gross profit will actually be decreasing! Remember that buyers are paying for future profit of the business, not sales.
- Limited Vendor Involvement
Businesses with limited vendor involvement or run under management are also very attractive in the current market. The reason for this is that if there is limited involvement from the current owners of the business, the purchaser expects that the transition of income to the new owner will be relatively smooth. It is expected that a business run under management will not be performing as well as an owner-operated business. Therefore, there is likely to be more upside in the management run businesses (especially if the purchaser plans to manage the business).
- Long Lease Tenure
The lease tenure is very important in the case of a pharmacy purchase, especially where a bank is involved for finance. The lease tenure shows the security of the site and therefore is critical to the future operations of the business. In most sites the longer the lease, the better. However, in certain cases, it can be attractive for a shorter lease if the purchaser wants to relocate the business. In general, the security that a long lease provides is very attractive to the market.
How do these characteristics compare to your pharmacy? For a confidential discussion about your pharmacy and the market in your area, please feel free to contact Natalie at Attain Business Brokers anytime on 1300 ATTAIN (288 246). I look forward to discussing with you further!