Walgreens Real Estate Is Up for Grabs

Three months after Walgreens’ nearly century-long run as a public company ended, the real estate fate for several of the pharmacy chain’s stores is up in the air amid an uncertain time for the retail sector.

Walgreens, which was founded in 1901 and first went public in 1927, officially became a private company in late August when private equity firm Sycamore Partners completed its acquisition of Walgreens Boots Alliance. The deal has put Sycamore in the driver’s seat of a number of Walgreens corner stores around the country, setting the stage for potential repositionings to other uses such as mini grocery stores, discount retailers or urgent care facilities.

Bryn Feller, senior vice president and managing director in the Chicago office of capital markets firm Northmarq, said Sycamore was largely driven by real estate opportunities when it made the deal with Walgreens. Feller noted that Walgreens went from around an $80 billion market cap in 2020 before the COVID-19 pandemic to one of less than $20 billion in a few short years, due to around a third of its fleet losing store revenue.

“The challenge that Walgreens has is they signed very long-term 20- and 25-year leases at rents that were reflective of a different retail era,” Feller said. “I think Sycamore is really thinking through a number of creative approaches to try and solve that challenge.” 

Walgreens and Sycamore did not return requests for comment. 

Around a decade ago, Walgreens owned about 35 percent of its stores before reducing that share to around 10 percent following a number of large sale-leaseback transactions with companies like SunTrust Equity Funding and Mesirow, according to Feller. There are now roughly 470 Walgreens for sale in the marketplace between third-party investors, according to Feller, accounting for $2.5 billion of potential transactions. 

Feller said Sycamore’s decisions about what to do with Walgreens properties will vary by location and hinge largely on revenue or lease terms. One Walgreens site in the Indianapolis market that Northmarq is working to sell is not netting enough annual sales to be profitable with around three years left on its lease, she said.

“They’re purchasing this property at about an 11 percent cap rate off the rent because they feel strongly that it’s got the capability to attract either a convenience store or a quick service restaurant if and when Walgreens leaves,” Feller said. “They’re looking at this and saying, ‘I know what Raising Cane’s or Chick-fil-A or Wawa can pay for a ground rent for these types of locations,’ so they can compare that to what they can acquire this site for with the Walgreens lease and make economic sense of it in that context.”

Ryan Reich, chief financial officer of developer and owner Mountain Shore Properties, said the Walgreens privatization deal with Sycamore underscores how pharmacy chains have overextended themselves in the past by expanding far beyond medicine into mini grocery stores. Reich, who has worked with retail brands CVS and Aldi in a landlord capacity, said with many non-pharmacy items now easily available to customers on Amazon, he expects Sycamore to repurpose many Walgreens into small grocery stores or medical use spaces.

“A lot of these grocers are trying to figure out how to fit in smaller spaces in some of these urban environments, which I think could potentially lend itself toward the footprint of a Walgreens,” Reich said. “But then you’re going to also have the ones that are in suburban environments that are in a much larger, standalone, single-tenant type of a building, not part of a larger development, so those will have to be repositioned differently.”

Reich said many Walgreens stores are roughly the same size as a Trader Joe’s, making the grocer a potential natural fit along with Whole Foods, which recently unveiled a smaller-format store concept in the 7,000- to 14,000-square-foot range. He noted, though, that suburban locations may pose challenges for a grocery store repositioning since some Walgreens are often in shopping centers with other grocers, making urgent care perhaps a more viable play.

Given the costs associated with lining up the stores for multiple tenants, Reich said Sycamore will likely opt to keep structures as they are to make them easier to turn over to single occupiers. 

“It’s challenging to reposition those things over time, but, if you get the dirt at the right price, you have time on your side and you can work through those things,” Reich said. “It’ll be different for probably every location, but a lot of them are really well located in high-traffic areas, so they’re going to have a lot of options.”

Seri Bryant, a net lease broker at Matthews, said Sycamore has a long history of steering turnarounds with retail chains it has acquired. 

That track record includes a 2017 acquisition of Staples’ retail assets, in which, instead of competing directly with Amazon, Sycamore focused more on the business-to-business supply side and reduced footprint. The private equity firm tried executing a Staples merger with Office Depot that was scaled back after encountering regulatory pressures in 2023.

Bryant stressed that one major challenge Sycamore will encounter is the burden of many long-term and expensive leases that need to be shed. He noted that Walgreens has plans to close 30 percent of its stores by letting leases expire or by subletting the locations.

“Chapter 365 bankruptcy provides a powerful, and sometimes the only, legal tool to break or renegotiate these leases against the landlord’s will,” Bryant said about the part of the bankruptcy code concerning unexpired leases. “While this tactic is part of Sycamore’s DNA, Walgreens is the second-largest of the two remaining pharmacies, so bankruptcy and store closures on the scale required would likely be a PR nightmare and may attract government scrutiny.” 

It’s more likely that well-situated Walgreens locations will become multi-tenant stores, quick service restaurants or experiential retailers like gyms, Bryant said. He noted that a number of Dollar Stores have also taken up some empty Walgreens spaces to test markets before signing a long-term lease or building a separate location in the same market. 

Sycamore is expected to separate real estate assets from retail operations, which Bryant said offers some advantages as the firm seeks its turnaround strategy. 

“If the company separates into two entities, it can divest of underperforming assets while retaining strong locations and brand equity,” Bryant said. “This also streamlines renegotiations of expensive leases and carries the implicit threat of bankruptcy.”

Northmarq’s Feller said grocery chains like Trader Joe’s or Aldi would be ideal fits for many Walgreens sites, but both companies have very strict parking requirements that may complicate them as replacement tenants. With no obvious retailer to fill the closed Walgreens, Feller said ground lease operators may play a large role in helping deals pencil out financially. 

Weaker financials, coupled with one of the largest portfolio inventories of net-leased assets, have driven cap rates for Walgreens properties above 7 percent in late 2025, compared to around 6.5 percent in 2024 and 5.75 percent in 2022, according to Northmarq data. 

Walgreens accounts for 9 percent of retail listings, leading all retailers, according to Northmarq. CVS, which is planning to close 1,000 stores, has 5 percent of the total retail inventory, setting up competition with Walgreens for new customers depending on which locations the companies close.

“CVS is going to close 1,000 locations, so what happens when you have a CVS and a Walgreens in a market and they’re both average or mildly losing performers?” Feller said. “It’s a game of chicken of who’s going to blink first, because as soon as that person blinks, that other source stands to benefit quite a bit. They won’t get 100 percent of the scripts, but even 30 percent of those scripts can have a real, meaningful difference.”

Andrew Coen can be reached at acoen@commercialobserver.com.