In commercial property, pharmacies sit in a sweet spot - critical to their communities, tightly regulated, and often seen as a low-risk tenant class. But beneath that stability lies a unique set of value drivers that set pharmacy-tenanted properties apart from typical retail or healthcare assets.
In this article, we explore what makes pharmacy tenants different, how location plays a pivotal role in valuation, and the shifting market dynamics impacting demand for these assets.
Pharmacies enjoy a reputation as stable tenants - and with good reason. Their income is typically bolstered by government subsidies under the Pharmaceutical Benefits Scheme (PBS), which reimburses pharmacies for providing subsidised medicines to the public. This model provides a reliable income stream that is, in effect, underwritten by the government.
For landlords and investors, that translates to lower perceived risk and strong rent serviceability. Unlike discretionary retailers, pharmacies operate in the essential services sector, with performance less sensitive to economic cycles.
Still, it’s important to understand the regulatory framework that props up that reliability. Location rules, for example, restrict how closely new pharmacies can open near existing ones, helping to limit direct competition. Ownership rules cap the number of pharmacies one operator can own within a state, influencing tenancy strength depending on the structure (more on this later).
Compared to general medical tenants like GPs, dentists, or allied health providers, pharmacies tend to demonstrate more consistent cashflow and occupancy. This is partly due to their dual revenue model - retail sales plus subsidised dispensing income - and the high barriers to entry created by regulation.
Medical centres, while also resilient, often face more volatility tied to practitioner turnover, changing lease structures, and increasing corporate consolidation. In contrast, a single pharmacy operator with a secure lease and PBS approval often presents as a more bankable proposition for lenders and investors alike.
Where a pharmacy is located can make or break its performance - and directly impact the underlying property value. Here’s how different locations stack up:
Strip Retail: Traditional high-street settings offer visibility and foot traffic, but can also suffer from parking limitations and fluctuating surrounding tenancy mix. These are often independently owned pharmacies serving long-standing communities.
Shopping Centres: Pharmacies in shopping centres benefit from high volume foot traffic and convenience. These sites often attract larger banner groups and corporate operators. However, rents may be higher, and lease terms can include turnover rent clauses or restrictive covenants.
Standalones: These are rarer but growing - built pharmacies or those paired with a small medical practice. They offer autonomy and branding control but rely heavily on destination traffic and parking access.
Medical Centres: Arguably the most synergistic location, pharmacies co-located with GPs, pathology services, or radiology benefit from natural cross-referrals. This “healthcare hub” model is increasingly popular with both patients and investors.
From a valuation perspective, co-location with healthcare services often enhances tenant retention and reduces vacancy risk - two factors that directly influence capitalisation rates and long-term asset value.
The COVID-19 pandemic reaffirmed the value of essential service tenants. Pharmacies remained open, adapted quickly, and in many cases expanded their services (e.g. vaccinations, rapid antigen tests, health advice).
Since then, investor appetite for pharmacy-tenanted assets has surged. We’ve seen:
Tightening yields, particularly for metro-based assets with long leases and strong tenant covenants.
Increased buyer competition, including private investors, SMSFs, and syndicators attracted by stability.
A shift in buyer profiles, with more healthcare-focused investors entering the market, often preferring pharmacies over traditional retail due to lower risk and longer lease terms.
That said, regional pharmacy assets tend to trade at softer yields due to demographic and liquidity factors, even if rental income is stable.
Not all pharmacy tenants are created equal. Ownership models affect tenancy strength, operational risk, and by extension, the property’s value.
Independent Pharmacies: Often owner-operated, these tenants typically have a strong connection to their community but may have less financial depth compared to corporates. Lease terms can vary widely, and business goodwill may be tightly linked to the individual operator.
Banner Groups (e.g., TerryWhite Chemmart, Amcal, Guardian): These are independently owned but benefit from the scale and branding of a national network. Brand alignment can enhance tenant credibility, but financial covenants may still rest with the individual operator.
Corporate-Owned: Fewer in number due to ownership restrictions, but where present, these tenants (e.g. Chemist Warehouse franchises, Ramsay Pharmacy) often provide stronger covenant strength. Investors tend to favour these for their scale and backing, even if the returns are slightly compressed.
From a valuation standpoint, understanding the tenant's backing - whether it's a sole trader or a group with 100+ outlets - can inform risk assessments and capitalisation rates.
Pharmacies may not move often, but when they do - or when they undergo major refurbishments - it can change the playing field for landlords and valuers.
Triggers for revaluation include:
Relocation or site expansion, particularly when a pharmacy upgrades to a higher-traffic site or co-locates with other health services.
Significant refurbishment or fit-out, where new capital expenditure increases utility, branding appeal, or compliance (e.g. automated dispensary systems, accessibility upgrades).
Lease renegotiations or renewals, which may reset market rent, especially if changes are made to lease length, rent review structure, or tenant incentives.
Ownership changes, where a pharmacy is sold and the new owner renegotiates lease terms - often an opportunity for landlords to revisit rent and valuation assumptions.
It’s also worth noting that pharmacy fit-outs are often expensive and customised, giving tenants a vested interest in staying long-term - another tick for risk-conscious investors.
The pharmacy sector is a niche but increasingly significant player in the commercial property landscape. For valuers, investors, and landlords, understanding the sector's unique tenant profile, regulatory backdrop, and evolving market dynamics is key to making informed decisions.
Location still matters - but so does tenancy strength, co-location strategy, and adaptability in a post-COVID, tech-enabled healthcare world.
Whether you're a first-time investor, a seasoned landlord, or a lender seeking reliable valuation insight, our team of specialist property valuers and advisors understands the unique dynamics of pharmacy-tenanted assets.
From market valuations and rental assessments to acquisition due diligence and feasibility advice, we offer a full suite of real estate advisory services tailored to the healthcare and retail sectors.
Visit our website to explore our specialist services - or reach out directly to speak with one of our experienced pharmacy valuation experts. We’re here to help you make confident, informed property decisions.
National Director - Specialist Real Estate & Residential Development
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