Vacant Pharmacies Are Holding Back NYC Retail

The Zombie Pharmacies That Are Holding Back New York City Retail – New York Times
By Stefanos Chen, Aug. 6, 2024

Over a million square feet of retail space is empty in vacant chain-drugstore locations across New York City…A former Walgreens in a condo in Murray Hill has been closed for over seven years…Scores of chain drugstores that once anchored shopping hubs across New York City remain shuttered even as much of the city’s storefront real estate has bounced back from the Covid-19 pandemic. Many could stay that way for years to come, because of ironclad leases, the difficulty of finding new tenants for the sprawling spaces and seismic shifts in the drugstore business, brokers and industry analysts said..smaller independent pharmacies have opened rapidly, often within a short walk of the shuttered stores. In July, there were 2,568 pharmacies across the city, virtually the same number as before the pandemic…Three of the biggest pharmacy chains — Walgreens Boots Alliance, which owns Duane Reade; CVS; and Rite Aid — said in statements that they were still reducing their store count…Rite Aid filed for bankruptcy last year and is no longer paying rent on any closed stores in New York City, while the other companies are still paying rent on several vacant spaces as they negotiate buyouts or seek subtenants…In the second quarter of this year, an average of 14 percent of space in the major retail markets of Manhattan was available for rent, the lowest share in eight years, according to Cushman & Wakefield, a real estate firm. That is a remarkable recovery from the depths of the pandemic in 2021, when nearly 27 percent of that space was available, said Steven Soutendijk, an executive managing director at the firm…The pandemic forced many New York landlords to reduce rent and consider different tenants, which benefited many businesses, especially restaurants and cafes, services like nail salons and, for a time, a run of illicit smoke shops, he said…But big pharmacies have gone in reverse. The industry has changed drastically in recent years, said George Hill, an analyst at Deutsche Bank who covers pharmacies. Pharmacies are now being reimbursed at lower rates for drug sales, which make up three-quarters of store revenue, while online shopping has cut into sales of convenience items like toothpaste and deodorant…“All these chains are locking up their products, which is a bad user experience”…Mr. Soutendijk said…Why is it so hard to fill the vacant stores?…The most common reason is a concept called “dark rent.” Pharmacy companies are seeking to cut their losses by shuttering unprofitable stores that have high labor costs, Mr. Hill said, but in most cases they are obligated to continue paying the rent long after the store closes, or goes dark. Most of the pharmacies that have closed in recent years were signed to 10-, 15- or even 20-year leases, at rents that often exceed today’s rates…In these cases, a landlord has almost no incentive to seek a new tenant…That puts property owners’ interests at odds with the city’s recovery, said Jonathan Bowles, the executive director of the Center for an Urban Future…Part of the solution could come from land-use changes in the mayor’s “City of Yes” zoning plan, part of which passed the City Council in June. The changes added a wide range of new “experiential” uses in commercial districts that could allow a pharmacy to be converted into a children’s play center, a laser tag venue or an ax-throwing bar, among other things. It also permits new forms of light manufacturing in some districts, such as beer brewing, coffee roasting and 3-D printing.