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CRE’s Emerging Drug Problem

You’ve probably heard rumblings about Amazon’s potential entrée into the prescription drug business for the better part of this past year. Yet the latest move by the e-commerce giant has turned that rumor into a reality.

Outbidding Walmart, Amazon just shelled out $1 billion for a startup that will provide it with “nationwide access” to the prescription drug business. The online retailer’s acquisition of PillPack now gives it the ability to ship pharmaceuticals overnight to patients in 49 states.

This will be the ultimate disruption for the drugstore business; indeed, shares of Walgreens, CVS and Rite Aid tumbled in the wake of the announcement.

It’s significant for the commercial real estate industry as well, and the impact comes down to simple logic.

The sector’s three major chains—Walgreens, Rite Aid and CVS—currently occupy 22,375 locations throughout the US. On the purely retail end, they were already feeling the pressure of the Amazon effect, shrinking their collective footprint by nearly 20% in response to declines in sales of non-drug-related goods.

Now that the e-commerce behemoth has encroached on their main line of business, it’s fair to expect even more erosion. At a minimum, Amazon will likely slice off 25% of all prescription sales. The subsequent impact to revenues will then lead to further reductions in both the size and number of stores that these chains, and others, will occupy.

That translates to a lot of mothballed space. It’s clear that the real estate industry will soon find itself with a major drug problem.

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