2024 set to be a big year for UK pharmacy says broker, Christie & Co
Specialist business property adviser, Christie & Co, has today launched its Business Outlook 2024 report which reflects on the themes, activity and challenges of 2023 and forecasts what 2024 might bring across the industries in which Christie & Co operates in, including the pharmacy sector.
Overview
The pharmacy business landscape remains challenging, partly because of legacy issues from the pandemic years but also, in England, as a result of the ongoing pressure the flat funding agreed in the 5-year deal in 2019, restricting the global funding sum to £2.592bn for each year.
Throughout 2023, transactional activity was strong despite ongoing operational challenges. Offers were accepted, on average, at 2.5 % above asking price. Whilst there was an increase in the number of sales agreed over the year, there was a 15 % decrease in completion volumes, largely due to ongoing delays in the change of ownership process. When split by buyer type, 45 % of pharmacies were sold to first-time buyers and 55 % to independent contractors and regional multiple operators.
As a result of the continued pressures contractors faced in the second half of the year, there was a noticeable rise in the number of distressed pharmacy sales, although there was a strong appetite from buyers who were keen to acquire competitively priced opportunities on a local and regional basis. Christie & Co expects this trend to continue throughout 2024.
Market Sentiment
As part of its annual sentiment survey, the company surveyed pharmacy professionals across the country to gather their views on the year ahead. 46 % of people said they felt positive about 2024, while 55 % felt either neutral or negative about what’s to come. When asked about their sale and acquisition plans in 2024, 85 % said they are planning to either buy or sell this year.
Pricing
Whilst the pharmacy sector witnessed strong activity levels in 2023, cost challenges continued to make an impact. As a result, the inevitable reduction in profitability manifested itself in a general softening of sale prices, with Christie & Co’s price index reporting a drop of 4.6 % across the year.
The Finance Landscape
In 2023, pharmacies maintained their status as a preferred lending sector, with significant borrowing opportunities. The surge in pharmacy transactions, driven by LloydsPharmacy disposals, put pressure on lenders, valuers, solicitors, and NHS England, creating inevitable delays in the sales process.
There were multiple increases in base rate in 2023, rising to 5.25 % in August 2023, which inevitably impacted debt servicing. For example, this shift increased the annual cost of repaying a £500,000 pharmacy loan from £49,825 to £57,350, prompting cautious lending practices. 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 debts arising from pharmacy loans is still low compared with other sectors.
Alternative lending facilities – such as revolving credit – saw a 175 % increase last year, says Christie Finance, addressing challenges like automation and consultation room expansion. In 2023, 50 % of funding supported by the finance broker supported automation, refurbishment, and equipment.
Market Predictions
In 2024, Christie & Co expects:
- An increase in distressed pharmacies across the sector
- Continued interest from existing operators, particularly for defensive purchases
- Opportunities for investors and those with finance who are looking to enter the market
- Operators will be awaiting news on new funding settlement as it will have a big impact on the short to mid-term future
Tony Evans, head of pharmacy at Christie & Co, comments, “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 5-year deal in 2019.”
The report also includes commentary from Christie Insurance on the insurance market, insights on bank and business recovery, a broader business market overview from the company’s Global Managing Director, and a video interview between Mike Patel (Pearl Chemist Group) and Tony Evans (Christie & Co).
For the full Business Outlook 2024 report, visit: https://www.christie.com/news-resources/business-outlook/2024/
