Rite Aid Is Closing 800+ Stores -- Who Will Be The New Users And How Quickly Will The Space Fill?
Will the type of reuse and pace of re-tenanting and match the rapid backfills of the ~700+ Toys R Us stores that closed following its 2017 bankruptcy?
Rite Aid is expected to emerge from bankruptcy in the coming weeks with $2.5 BB in new exit financing and a $2 BB reduction in its total debt.
And over 800 fewer drugstores.
So as Rite Aid moves on what will happen to the 10 MM+ square feet of vacant real estate that it leaves behind?
What users will likely fill its stores and how quickly will the buildings be re-tenanted?
Seven years ago Toys R Us filed for bankruptcy and closed a similar number of its Big Box stores — but its real estate did not remain vacant for long.
Will a similar situation unfold with the Rite Aid real estate?
Rapid — and Concentrated — Re-Tenanting of Toys R Us Real Estate
At the time of its 2017 bankruptcy filing Toys R Us operated ~725 stores in the U.S. and Puerto Rico (in all U.S. states except Wyoming).
The stores averaged ~40,000 square feet each and collectively totaled more than 30 MM square feet of retail space.
Despite the vast amount of real estate vacated by Toys R Us, the majority of the space was quickly reabsorbed:
~90% of 725 Toys R Us stores were re-tenanted or redeveloped within 3 years.
~60% of Toys R Us stores were backfilled by tenants in just 3 retail categories:
Off Price Retail (30% of backfilled stores);
Furniture (20% of backfilled stores); and
Grocery (9% of backfilled stores)
In fact just 4 retailers (Burlington Stores, Big Lots, Ollie's Bargain Outlet and Hobby Lobby) account for ~25% of the backfilled Toys R Us stores.
Burlington opened at over 55 Toys R Us sites — more than any other company.
Several other national retailers including ALDI, Planet Fitness, Ashley HomeStore, Bob’s Discount Furniture, PGA Tour Superstore, Ross Dress For Less and the TJX Companies each took at least 10 former Toys R Us sites.
The re-tenanting of the Toys R Us properties was not only quick but was also concentrated by a handful of large national companies and retail categories.
Why was the Toys R Us real estate in such high demand by large national retailers?
Location — Toys R Us stores were prominently located in dense, high traffic corridors and/or in “land scarce” areas with little new development
Co-Tenancy — most stores were prominently located in primary retail trade areas, often adjacent to strong retailers in thriving open‐air shopping centers
Market Share Capture — retailers that sold similar products and/or targeted
Toys R Us consumers sought to capture some of its lost sales and market share by locating in stores with a proven sales record and customer base
But unlike the Toys R Us case, no major national tenants or retail categories are expected to pursue large numbers of the shuttered Rite Aids.
Clustered In Certain States But Spread Across Urban, Suburban and Rural Areas
~85% the Rite Aid store closures are clustered in a handful of states.
Approximately 230 of the shuttered Rite Aids — ~30% of closures — are in Michigan.
Other states with significant Rite Aid store closures include:
~180 in Ohio
~100 in Pennsylvania
~100 in California
~60 in New York
~40 in New Jersey
Most stores are 10,000-15,000 square foot, freestanding buildings with relatively proportional frontage and depth.
They are generally located on 1.5 - 2 acre parcels, often premier "hard corners" — or signalized intersections with high traffic flow and good access.
The stores are typically set close to the street and feature prominent signage, a dedicated parking field, and a drive thru.
But the former Rite Aid stores are spread across urban, suburban and rural locations in all states — each with different demand patterns that will likely affect the type of user and pace of re-tenanting.
Dollar stores have been perhaps the most frequent taker of former drugstores that closed in the years prior to the Rite Aid bankruptcy.
But Dollar General has delayed many new store openings to focus on remodeling its existing stores.
And Dollar Tree announced plans earlier this year to close nearly 1,000 of its Family Dollar stores.
Other use categories that have previously backfilled drugstore real estate — like health clinics, plasma centers and grocery stores— may open in a few former Rite Aids but not likely in significant numbers.
With no large tenant or retail categories expected to backfill the former Rite Aid stores, "one off" users will likely fill the majority of urban, suburban and rural Rite Aid stores.
Such as local small businesses and municipal authorities that may repurpose the buildings as as gyms, retail stores and even community centers.
Or, perhaps, as more creative uses such as indoor dog parks and car wash units.
Like the 15,000 square foot square foot former Rite Aid in Picayune, Mississippi that was converted into Fitness Depot, a locally owned and operated gym.
Or the former Rite Aid in Alpharetta, Georgia that was recently repurposed as Off Leash, a combined dog park and full service restaurant.
This former 11,000 square foot Rite Aid building was split into a ~5,000 square foot restaurant and coffee bar (for humans) and a ~6,000 square foot indoor dog play area.
A 1/2 acre area to the rear of the property was also converted to an outdoor dog park.
Yet another creative Rite Aid adaptive reuse is as an enclosed express conveyor belt car wash.
Express Wash Concepts has already converted a pair of former Rite Aid buildings in the Pittsburgh area into car wash units.
And it received approval late last year to convert a Detroit-area Rite Aid into a car wash as well.
The pace at which the former Rite Aid buildings are re-tenanted is also not likely to match the relatively rapid backfills of the Toys R Us stores.
Demand from “one off” users will vary significantly across the 800+ closed stores given that they are spread across urban, suburban and rural locations.
Additionally many of the former Rite Aids are not owned by large institutions — and not all individual owners are capitalized to fund re-tenanting costs.
Plus “creative” conversions — such as dog parks and car wash units — may require zoning modifications or municipal approval periods that can be lengthy.
Ultimately the reuse and redevelopment of the 800+ shuttered Rite Aids is expected to be more challenging and protracted than the re-tenanting of the Toys R Us stores.
But the good locations and real estate attributes of many former Rite Aid sites may also provide for unique adaptive reuses.
So opportunities abound for Landlords, real estate brokers, retailers and others seeking to re-tenant or repurpose these former Rite Aid stores.
They may just need to be creative!