Pharmacy transactions are up this year despite falling profit margins across the sector, a property broker has said as it explained there is continued demand “for those businesses that can weather the storm”. 

Christie & Co’s annual market review, published this morning (Wednesday October 9), reveals the broker handled 95 completed sales in the first half of 2024 – 72 per cent higher than over the same time period last year. 

The report said the volume of sales came in spite of the “fierce impact” funding pressures are having on the sector, with average combined gross margins falling by 1.7 per cent to 31 per cent – and “many operators” coming forward to say their margins have fallen by five per cent or more despite England’s pharmacy sector seeing a seven per cent increase in items dispensed per month.  

These “unsustainable” pressures forced the UK pharmacy network to shrink by 3.5 per cent to 13,822 as of March 31 this year, the report found, with 505 pharmacies removed from the register – largely branches of corporate multiples.

The majority of permanent closures were in England, where the network shrank from 11,779 to 11,315 year on year, a decrease of 3.9 per cent. The networks in Northern Ireland, Wales and Scotland reduced by 2.5 per cent, 1.9 per cent and 1.1 per cent respectively. 

“Although cost pressures will continue to be a feature for the foreseeable future, market appetite remains strong for those businesses that can weather the storm,” Christie & Co pharmacy director Jonathan Board commented.  

First-time buyers struggle to be considered

As in previous years, prospective first-time buyers accounted for the “vast majority” of applicants to purchase pharmacies. However, just 22 per cent of the broker’s 95 completed sales were to first-time buyers, compared to 30 per cent purchased by large groups and 22 per cent purchased by small independents.  

“This reflects the ongoing preference to accept offers from existing operators, or those with fitness to practise in the same ICB area,” said Christie & Co.  

According to the report, the independent sector has been the biggest beneficiary of corporate market churn in 2023, the biggest driver of this being the selling off of the entire LloydsPharmacy estate at “greatly discounted prices”.

The number of pharmacies owned by contractors with one to 10 branches grew by 12.8 per cent, rising from 6,595 to 7,440, while the large multiple sector shrank by 32 per cent to 3,309. 

Christie & Co said that although share sales account for a majority of sales in most years, in the first half of 2024 over 95 per cent of completed sales have involved asset sales due to corporate disposals;. 

“As these corporate disposal programmes subside over the remainder of 2024, it is anticipated that this will settle, with more share sales set to conclude,” the broker said. 

“High profile administration appointments” such as the LloydsPharmacy insolvency have seen “some lenders” adopt a more “cautious and conservative approach to funding in the first half of 2024, the report found, although it also noted that 85 per cent of lenders “have a positive outlook towards the sector”. 

Jonathan Board commented: “With any operational efficiencies that can be delivered now having been delivered, the continued cost pressures are unsustainable, a situation which without an urgent funding boost.

“With the recent news that clarity will not be seen until after the Chancellor’s Autumn Statement, contractors in England will have to wait to see whether any proposed increase will offer respite for the remainder of the financial year and how much this will offset further National Living Wage increases anticipated in April 2025.

“Following the glut of corporate disposals over recent years, we anticipate that the market will return to some sense of normality as potential purchasers eye up more traditional independent pharmacy opportunities. Market appetite in England will be tempered by the outcome of the much-needed funding settlement negotiations.”