Retail Trends: Pharmacists are willing to fork-out high rents and strong premiums in order to get into desirable locations, writes Fiona Tyrrell
Expansion by pharmacy groups and healthy profits in the sector means that pharmacists are willing to pay major money to get a presence in prime retail areas.
The intense demand for high street chemists or pharmacies located in prime retail developments has pushed competition up to pre-regulation highs and pharmacists are paying big rents and even bigger premiums to secure a position in the right scheme.
In pre-regulation times, high leasehold interests and rents were the order of the day because of limits imposed by the Government. Now the State-imposed restriction has been replaced by a tenant-mix restriction controlled by developers in major shopping centres.
As a result, pharmacists are willing to fork out high rents and strong premiums in order to get into desirable locations.
Intense competition for new developments has been fuelled by a number of expansionary companies, which have sought to get critical mass and domination across the country, according to Larry Brennan of Hamilton Osborne King.
The main players include Unicare, McCabe's, Boots, Health Express, Hickey's and McCauley's. While corporate takeovers led the way following de-regulation in 2002, the growth in the industry is more organic now, according to Stephen Murray of Jones Lang LaSalle.
Although the heat has gone out of the industry somewhat, there is still a rush to get into high footfall areas, he said.
Most new retail developments are now opting to put the pharmacy outlet out to tender, such is the level of competition in the industry. The attractiveness of a pharmacy in a new development will depend on location and whether the developer is offering exclusivity - all this will be reflected in the rent.
In most new schemes it is now usual for developers, through their agents, to invite interested parties to put their best bid forward.
High rents are commonplace and, on top of that, strong premiums, starting at €100,000 and averaging at around €650,000 plus are not uncommon in prime retail areas.
It is reported that a premium of around €1 million was paid by Health Express for a pharmacy outlet at Artane Castle Shopping Centre.
The sum paid in Artane is not unique. Hickey's is reported to have paid big money to secure a position in the Manor Mills Shopping Centre in Maynooth two years before it opened recently.
Every new scheme that has a pharmacy outlet is now opting to go for an informal best-bid process and, in response, bidders are offering two and three times the rent along with significant capital sums to secure the outlet.
There was phenomenal interest in the Artane outlet, according to Karl Stewart from DTZ Sherry Fitzgerald, prompted by the outlet's excellent location beside two big anchor stores - Penneys and Tesco.
However, in general, there is an "insatiable appetite" for pharmacy outlets, he said.
"Every time we put in an advert for a pharmacy outlet we get between 20 and 30 calls and between eight and 10 tenders."
He likened the demand to the strong competition for phone or optical usage in shopping centres.
Another new trend in the sector is the re-entry to the market of pharmacists who have sold out to major groups in recent years and are now free to re-establish themselves following the expiry of non-compete agreements of between two and three years.
Whether it's the medical card and prescription business or a strong cosmetic spend that the pharmacist is after, the sector is looking very healthy.
"Certain business models work for the major shopping malls. The likes of McCabe's and McCauley's offer cosmetic sales and perfumes and giftware. They are major retailers and are no longer just drug dispensaries," said Larry Brennan.
