2020: a strong year for the healthcare real estate investment market
21 december 2020
Healthcare real estate continues to remain an attractive long-term investment option despite the turmoil in the real estate and healthcare markets. As a result of the immense challenges in healthcare real estate and its attractive risk-return profile, investors' interest in healthcare real estate continued to increase in 2020. In total more than 1 billion euros was invested in this segment in 2020. Despite the large amounts of capital available for this asset category, the total transaction volume amounted to 19% less than in 2019. The most important factor for this decline is the shortage in qualitative supply for investment. Remarkably, there was a rise in the percentage of new-build transactions within the total volume. Of the total transaction volume, 49% involved new-build transactions. Research from Capital Value has shown that investors' interest in healthcare real estate will increase even further. Investors have indicated to have a record 6 billion euros available for investment in this segment over the next three years.
Growing number of investments in new-build output
Market parties are responding to opportunities that the market is offering as a result of the substantial quantitative and qualitative challenges in healthcare real estate. The number of senior citizens will rise sharply in the coming years which means suitable housing for the elderly and those in need of care will be required. According to ANBO, there is currently a shortage of approx. 100,000 homes for the elderly, and this shortage increases by approx. 20,000 every year. In addition, a large portion of the existing stock of healthcare real estate is outdated and modernisation of these properties is required. Therefore, it is a very positive development that increasingly more market parties are investing in new-build output or renovations of healthcare real estate. The percentage of new-build output, renovations, and conversions grew to 49% of the total transaction volume of healthcare real estate in 2020, whereas this amounted to approx. just 33% last year.
The emerging role of housing associations
Housing associations especially are actively involved in the challenge of having healthcare real estate in their portfolios. This was confirmed in earlier research conducted by Capital Value, which showed that 88% of housing associations want to play an active role in addressing the shortages in the healthcare real estate market. The percentage of housing associations that were purchasers in the total transaction volume amounted to 14.9% in 2020, while that percentage only amounted to approx. 4.4% last year. Just as in the investment market for residential real estate, housing associations are selling property to each other at a higher rate. Habion and Woonzorg Nederland in particular are very active in the healthcare investment market.
What is striking about the current market is that the percentage of institutional investors in the transaction volume has decreased to 16.5% (last year this was still 30%), while the percentage of real estate investment funds has increased to 35%. An explanation for this development is that the supply currently does not meet the acquisition objectives of the (Dutch) pension funds, which provides more opportunities for private and publicly traded real estate investment funds in acquisitions.
Over 6 billion euros available for investment in healthcare real estate
Research from Capital Value among investors and housing associations has shown that a record amount of 6.3 billion euros is available for investment in healthcare real estate over the next three years. Whether the available capital can be used depends a great deal on the available supply and new forms of cooperation in the market. Increasingly more healthcare institutions are examining the possibilities of selling their real estate to investors such as through a sale and lease back construction. The solvency and investment capacity of healthcare institutions have diminished this year. Despite their flexibility and resilience in dealing with the crisis, expenditure rose and revenue was under pressure. Banks are also hesitant to provide financing for this target group, partially due to the decline in solvency. Cooperation with investors can provide a solution so that the necessary expansions or renovations can still be realised within the real estate portfolio. This applies to both existing and new-build stock.
Manon Kuipers, real estate adviser at Capital Value, "The foundations under the healthcare real estate investment market were strengthened in 2020. This year a variety of new parties entered the market and established parties increased their mandate. The total transaction volume would have certainly been much higher than 1 billion euros if there had been a greater and qualitatively suitable investment offering. Since the quantitative and qualitative challenges are so great in this segment and there is so much capital available from investors, we especially want to appeal to market parties and healthcare institutions to cooperate more so that more new-build output can be created and existing stock can be optimised."