Rite Aid Rush: Chain's Slow Decline Sets Precedent For Creative Reuse Postbankruptcy

Rite Aid’s bankruptcy declaration and pending shutdown are bad news for the Philadelphia-based company’s employees.

But the retailer's prime locations and history of successful readaptations present a major opportunity for the city’s real estate community.

The chain’s long decline has been defined by a steady trail of closures as well as an already long list of successful redevelopment projects across the metro area, with more in the pipeline.

“It is the most sought-after real estate for varied reasons,” Philadelphia-based Colliers broker Todd Sussman said of Rite Aid’s real estate holdings. “Someone will capitalize on the visibility, the access and the location.”

A CoStar analysis published earlier this month identified more than 1,200 Rite Aid retail locations for sale across 15 states. That includes 121 in Philadelphia and its suburbs.

“There’s more and more properties coming online regularly,” Sussman said. 

How that property has been used amid a great pharmacy shrinkage offers a template for what might happen going forward.

OCF Realty owns the building that houses a Rite Aid near the Italian Market at 801 S. Ninth St. The developer plans to demolish the structure and its parking lot so they can be replaced with a residential development, including 16 condos and nine single-family homes.

“I’m thrilled … anytime I get to turn a single-story retail space with a lot of parking into some level of density,” OCF CEO Ori Feibush said. 

“I wish Ninth and Catharine [Street] was being turned into something with more density, but the market is not supporting that kind of development right now.”

Feibush is in “no rush” to start construction, given the store was still open as of Monday. Despite the property’s commercial roots, OCF’s development won’t have a retail element. That is partly due to opposition from residents living nearby.

“If the neighbors could guarantee it could be a locally owned pharmacy, I think there would be a general consensus in support of it,” Feibush said. “You don’t get to curate your retail tenant in that type of way.”

Bella Vista Neighbors Association President Eugene Desyatnik disputed Feibush’s claim that the community opposed new retail on the site. It is in a CMX-2 zoning district, which permits several types of commercial uses.

Elsewhere, footprints are staying the same.

Sussman said he helped a medical tenant secure a lease at the 2131 N. Broad St. location. He declined to reveal more details about the transaction.

In suburban South Jersey, Rite Aid’s big, boxy stores located at busy intersections are a major asset for retailers, Sussman said, especially as high costs hamper new construction and national retail vacancy rates hover below 5%.

Dollar Tree, AutoZone and Napa Auto Parts have all taken over former Rite Aid buildings, as 42Freeway reported.

“They’re usually a clear-span space,” Sussman said. “You can do almost anything you want.”

That was a major draw for Activate, a team-based experiential gaming company building out a new location in the former Rite Aid at 1509 Route 38 in Cherry Hill. That is set to open this fall.

“Moving into a blank slate … makes our construction and design significantly quicker and easier,” Activate Head of Marketing Will Gray said.

“A lot of people in Cherry Hill might remember this as the former Rite Aid,” he said. “That’s great from a marketing standpoint.”

Activate's business plan calls for finding high-traffic locations, which means vacant pharmacies are often strong candidates. The company has two locations in former CVS outposts, one in Dallas and another outside of Atlanta.

Meanwhile, Feibush isn’t planning to buy any more Rite Aids yet, but he thinks the location at 704 E. Passyunk Ave. has great potential. A four-story multifamily building was recently built across from the store with a suburban-style layout similar to the Ninth Street location.

Sussman highlighted Rite Aid locations across from the Fashion District at 10th and Market streets and the Fairmount Avenue store down the street from the Eastern State Penitentiary.

Since the chain is headquartered in Philly, its real estate holdings in the region extend beyond standard retail outposts.

The company is vacating its roughly 66K SF headquarters in the Philadelphia Navy Yard, which is now available to lease, according to CoStar. An 850K SF distribution center at 701 Delran Parkway in Burlington County is also available to rent.

News of Rite Aid’s closure didn’t take Philly’s real estate community by surprise.

Rite Aid shutterings may be a surface-level win for competitors like CVS and Walgreens, but Sussman said he thinks the whole pharmacy sector is in a bad spot.

“It’s been on a downward trajectory for quite some time,” the broker said, adding that the health and beauty products that padded their margins for decades are readily available online.

The pandemic was a tough time for most retailers, but pharmacy chains were hit particularly hard by shoplifting and shrink. Rite Aid and similar chains opted to place frequently stolen products in locked cases at some locations, which alienated many customers.

“Those stores have been largely empty for the last year and a half here,” Feibush said.

CVS and Walgreens have seen their stock values fall dramatically in the postpandemic era, slashing their footprint.

“They have to change a little bit of how they’re marketing their spaces or how they’re filling their product lines,” Sussman said.

UPDATE, MAY 19, 4:45 P.M. ET: This story was updated to include comments from the Bella Vista Neighbors Association.