The Zombie Pharmacies That Are Holding Back New York City Retail
Over a million square feet of retail space is empty in vacant chain-drugstore locations across New York City. Here’s why it’s so hard to fill.
An empty Duane Reade, steps from Wall Street, darkens a landmark office building.
A former Walgreens in a condo in Murray Hill has been closed for over seven years.
A boarded-up Rite Aid in Astoria has attracted a homeless encampment in its parking lot.
They’re all examples of the city’s living dead.
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.
The result is over a million square feet of prime real estate collecting dust in some of the busiest commercial districts, according to a new analysis of the city’s pharmacy market. And critics say the stores have become neighborhood eyesores that attract illegal activity and detract from nearby businesses.
Now, business groups and elected officials are hoping to repurpose the spaces into things like microbreweries and arcades, thanks in part to recent zoning changes that allow for new uses.
Since the first quarter of 2020, before the pandemic, 222 big-box pharmacies have closed in New York City, and 138 stores were still vacant in July, according to Live XYZ, a mapping company that collects storefront data. The typical store ranges from 8,000 to 15,000 square feet, brokers said.
Manhattan had 64 vacant big-box pharmacies, the most of any borough, followed by 29 in Queens, 27 in Brooklyn, 16 in the Bronx and two on Staten Island. On average, the stores have been empty for more than 540 days, Live XYZ said, and more closures are expected from some of the city’s biggest pharmacy chains.
At the same time, 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, the data showed.
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 nationally but were exiting the stores responsibly. 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.
It is difficult to calculate the direct effect that empty storefronts have on crime and foot traffic, but business groups say the impact is obvious.
“It’s like a festering wound on the community,” said Dirk McCall de Palomá, the executive director of the Sunnyside Shines Business Improvement District in Queens, where he said a nearly 18,000-square-foot Rite Aid that closed was dragging down an otherwise busy strip.
Why are so many big pharmacies closing?
The big-box drugstores are an outlier in New York City, where most of the retail market is resurgent.
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 national retail vacancy rate was even tighter at 5.3 percent, the lowest in two decades.
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. In 2014, after years of aggressive openings, the major drugstore chains had 656 locations in New York City, according to the Center for an Urban Future, a nonprofit think tank that tracks retail. Now there are fewer than 370, according to Live XYZ.
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.
A major retail trade group had cited a surge in theft as a major contributor to store closures, but later admitted that its analysis was overstated. That perception, however, has been costly.
“All these chains are locking up their products, which is a bad user experience” and a large expense to stores, 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, brokers said.
In these cases, a landlord has almost no incentive to seek a new tenant, allowing the store to sit empty for months or years, said Aric Trakhtenberg, an associate director at Newmark, a real estate firm.
For the landlord, “it doesn’t make sense to make a deal,” Mr. Trakhtenberg said.
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.
“There’s a market failure here,” and it is hurting foot traffic in recovering retail corridors, he said.
In the financial district, a landmark office building with soaring Greek columns has had a 21,000-square-foot vacancy since Duane Reade closed its store there last year.
Jim Geskey, a managing director of Northwood Investors, which owns the building, said that the pharmacy was still paying rent. The lease is in place for nearly eight more years, according to a rental listing, and the pharmacy is seeking a new tenant to pay $1.4 million a year.
In cases where the pharmacy lease has ended, property owners face a challenging market.
At a former Rite Aid on Steinway Street in Astoria that recently closed, a large restaurant chain had expressed interest in the property, but the offer was for only half of the space, and at a lower rent than the pharmacy paid, said Faisal Gilani, an associate broker with NYSpace Finders. The owner, a local investor, declined the offer, he said.
One subway stop away, at Broadway and 47th Street, a 25,000-square-foot building with a former Rite Aid was purchased by Long Island-based investors last year, according to property records. But in recent months, a group of men had set up a makeshift camp in the attached parking lot, littering the space with bicycles, clothing and trash.
A proposal has been filed with the city to convert the property into a five-story, mixed-use apartment building, but a spokesman for the Buildings Department said on Monday that the owner does not have approval to move ahead with those plans, because of unresolved issues with the application.
What could take their place?
Out of the 222 big-box pharmacies that closed since the beginning of 2020, more than 40 percent have been filled, including 40 with grocery and convenience stores and 22 with new pharmacies, according to Live XYZ.
In a statement, Maria Torres-Springer, New York’s deputy mayor for housing, economic development and work force, said the city “is aggressively combating” big-box pharmacy vacancies, noting that the city has already recovered all of the jobs and small businesses lost during the pandemic.
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.
Luca DiCiero, the founder of NYSpace Finders, is hopeful about the zoning changes, if only because they offer something different than the typical stopgap solution: Spirit Halloween.
The Halloween costume chain has already begun to festoon vacant pharmacies and other big-box stores in New York with bright orange signs, heralding its seasonal return.
But for a retail problem that represents miles of empty shopping aisles, Mr. DiCiero said, “that is the smallest Band-Aid imaginable.”
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