Healthcare property market transaction volume down, impact investment ambitions offer prospects
5 juli 2023
The transaction volume in the Dutch healthcare property investment market amounted to 113 million euros in the first six months of 2023. This represents a decrease of approximately 80% compared to the volume realised in the first half of the previous year. The number of investments in new-build output also fell relative to last year. Despite the low transaction volume realised in this period, investors still have much confidence in the healthcare property market: its foundations are strong, as is the need to improve the sustainability of and expand the existing stock. This is clear not only from the Rijksambitie (Government Ambition), but also from the interest in impact investment among both Dutch and international investors, which has risen sharply in a short period of time – a noteworthy development that will provide an important boost for this segment.
Investment opportunities in healthcare property inadequate
The transaction volume of 113 million euros is the lowest registered volume across the first half year in the past five years. This marks the first time that the effects of the shifting market conditions (market uncertainty and the rising capital market interest rate) are directly visible in the transaction volume. Another important cause of the low volume is the severe decrease in investment opportunities since the second half of 2022. Furthermore, market developments further jeopardised the feasibility of new-build projects. In recent months, the market was kept afloat primarily by institutional parties and associations, as well as a handful of transactions by listed investors. Examples include the purchase of 152 new lifetime apartments to be constructed in Utrecht by housing association Bo-Ex and the Bouwinvest Healthcare Fund, as well as the listed company Care Property Invest's purchase of the new-build complex Huize Willibrordus in Ruurlo from developer Gaudium Real Estate, to be leased by operating party Saamborgh with a long-term contract.
Recalibration of NHC and staff shortage further jeopardise feasibility of new build
The healthcare sector faces enormous financial challenges: while care and accommodation costs have risen sharply, allowances and budgets have not proportionally increased. Meanwhile, the healthcare property sector is faced with the announced recalibration of the Normatieve Huisvestingscomponent (Normative Housing Component, NHC), as a result of which income from this important source of funding for accommodation will shrink. Partly because of this, healthcare institutions are finding it difficult to gather sufficient resources to make the required investments in the current stock and to realise high-quality new care facilities.
In addition to the financial challenges impeding investments in healthcare, the healthcare sector is also hobbled by a persistent shortage of qualified staff. The number of available healthcare professionals is insufficient to satisfy the growing demand for care, especially care for the elderly. This personnel shortage has immediate consequences for the further expansion of healthcare and further complicates the feasibility of new-build projects, which was already difficult due to the increased construction and financing costs. In order to improve the feasibility of new-build projects in the healthcare property market and promote collaboration, a coordinated strategy must be established in the near future. In that regard, the recent legislative proposal that would among others see municipalities placed under the obligation to formulate a public housing programme for the elderly from 2026 onwards is a good first step.
Confidence in healthcare property market remains high, interest in impact investment increases
Despite the challenges in the healthcare property market, investors retain high confidence in this segment. Healthcare property remains an attractive investment due to the solid underlying foundations and the urgent demand for care caused by population ageing and growing care needs. The rising demand for care necessitates investments in new and improved care facilities. "The current strategies of investors with regard to ESG will provide an important contribution to the market," says Manon Kuipers, director of Healthcare Real Estate at Capital Value. "Dutch and foreign institutional investors are increasingly prioritising impact investments that will make a positive difference in the healthcare property market . These investors see investments in existing and new healthcare real estate stock as an opportunity to contribute to society, and are making capital available for investments in healthcare real estate through newly established impact funds. That capital is sorely needed to reduce the growing deficits."