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‘Distressed sales’ of struggling pharmacies to continue in 2024

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‘Distressed sales’ of struggling pharmacies to continue in 2024

The trend of struggling pharmacy contractors in England being forced to sell up is likely to continue throughout 2024, property broker Christie & Co has said today (January 11).

In its business outlook report for the coming year, Christie & Co said that in the second half of 2023 “there was a noticeable rise in the number of distressed pharmacy sales” due to the “continued pressures” on business owners, adding that the broker “expects this trend to continue throughout 2024”.

Other predictions from the broker included existing operators looking to expand “particularly for defensive purchases” in locations where a competitor might seek to buy pharmacies, and opportunities “for investors and those with finance who are looking to enter the market”.

Amid ongoing difficulties arising from the current contractual framework and uncertainty over the terms of the next contract – due to be announced in the first half of this year – Christie & co found that 54 per cent of an undisclosed number of surveyed pharmacy professionals felt either neutral or negative about the coming year, while 46 per cent said they felt positive.

Twenty-two per cent of those surveyed said they were sell their pharmacy and 46 per cent planned to buy while 17 per cent said they planned to both buy and sell pharmacies in 2024.

Profit drop

The previous year saw “strong” transactional activity, it said, with offers accepted at 2.5 per cent above asking price on average. However, business challenges meant that an “inevitable reduction in profitability manifested itself in a general softening of sale prices,” with the broker’s price index reporting a 4.6 per cent drip over the course of 2023.

“Whilst there was an increase in the number of sales agreed over the year, there was a 15 per cent decrease in completion volumes, largely due to ongoing delays in the change of ownership process,” the report noted.

“When split by buyer type, 45 per cent of pharmacies were sold to first-time buyers and 55 per cent to independent contractors and regional multiple operators.”

Interest rates spark caution

The report noted that while pharmacies “maintained their status as a preferred lending sector” with banks in 2023, interest rate hikes – rising to a  base rate of 5.25 per cent in August – prompted “cautious lending practices”.

The report continued: “Commercial finance broker Christie Finance doesn’t expect to see any material changes in the funding market during 2024 as banks remain well-capitalised and occurrences of bad debt arising from pharmacy loans is still low compared with other sectors.”

Meanwhile, alternative loan facilities like revolving credit saw a 175 per cent increase in uptake in 2023 to fund business needs like automation and refurbishment.

‘A big year for pharmacy’

Tony Evans, head of pharmacy at Christie & Co, commented: “2024 will no doubt be a big year for pharmacy. The introduction of the £645m additional services funding and the successful rollout of the Pharmacy First style minor ailments scheme will no doubt provide much-needed additional income in offering some respite to contractors.

“However, the key driver to the future viability of the sector will be the successful outcome of the wider funding agreement to replace that previously agreed as part of the Community Pharmacy Contractual Framework’s five-year deal in 2019.”

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