Growth of Dutch healthcare real estate market continues after strong first six months

3 augustus 2021

Research by Capital Value has shown that Dutch healthcare real estate investments in the first half of 2021 amounted to a record 458 million euros, a 22% increase compared to the first half of 2020. The previous record dates from 2019, when healthcare real estate investments in the first six months of the year amounted to 446 million euros. Noteworthy is the increase in the number of new-build transactions, as well as the consolidation of the role of international investors in the Dutch healthcare real estate market. The limited available investment opportunities and enormous availability of capital are putting a strain on returns in the healthcare real estate asset class.

Investments in new-build accelerated by real estate funds
The investment volume over the first half of 2021 received a significant boost from the transaction of the Albert Schweitzer hospital in Dordrecht to NorthWest Healthcare REIT (approx. 110 million euros). Without this transaction, the H1 transaction volume would have fallen short of the first half of 2019 (€446m) and 2020 (€413m). If we leave aside this transaction, the total share of new-build, renovations and transformations in the first half of 2021 amounts to 62%, compared to 44% in 2020 and just 33% in 2019. These transactions form a valuable contribution in combating the growing shortage of housing for the elderly and the quality mismatch of the existing stock. Institutional investors and real estate funds in particular are investing in new-build healthcare real estate in good locations, both independently and in collaboration with healthcare organisations. The increased interest in new-build can be explained by the limited opportunities for investment in existing properties and the increased transfer tax as from 1 January of this year.

Role of foreign investors increases
At 45% in the first half of 2021, the share of the investment volume accounted for by international parties is on the increase. Between 2018 and 2020, this figure fluctuated around 30%. In addition to the purchase of the Albert Schweitzer hospital by NorthWest Healthcare REIT, Belgian listed investors also effected a number of major transactions. Cofinimmo acquired healthcare campus Monnikenberg in Hilversum for 30 million euros, and Aedifica purchased Het Retraitehuis in Uden for 20 million euros.

Foreign investors are increasingly looking at Dutch healthcare real estate as an attractive asset class, increasing the number of new entrants to the market. The French company Perial, for example, entered the Dutch market with its purchase of a new-build complex in Heerlen comprising 60 apartments and studios rented by Stichting Philadelphia Zorg on a long-term master lease basis.

International investors are bringing experience and capital to invest in the Dutch healthcare real estate market, with a focus on properties with long-term triple or double-net leases to healthcare providers. International investors find the investment climate in the Netherlands to be more advantageous at this time than in most other European countries. A great deal of foreign capital is available, and these investors are often satisfied with lower returns than many Dutch investors. As a result, they are able to make highly competitive offers. "The interest in healthcare real estate is tremendous right now," says Manon Kuipers, healthcare real estate specialist at Capital Value. "The combined arrival on the Dutch market of international investors and new Dutch investors is visibly increasing the competition in this asset class, especially where larger transaction volumes are concerned. As a result of the increased competition and the stagnating supply in this asset category, initial yields have further decreased over the past six months."

Demand for healthcare real estate persists
In the first half of 2020, the growth of the healthcare real estate investment segment briefly appeared to falter due to the outbreak of the corona pandemic. However, any hesitation disappeared in the second half of 2020: previous research among investors and housing associations by Capital Value showed that a record €6.3 billion is available for investments in healthcare real estate in the coming three years. High capital pressure and efficiency in management mean that international and institutional investors, in particular, are demanding larger volumes, ideally 15 million euros or more per transaction. However, the average volume per transaction falls short of this: in the first half of 2021, the average volume was 10.2 million euros, including the transaction of the Albert Schweitzer hospital in Dordrecht. Not counting that transaction, the average volume was 7.9 million euros, which is still higher than the 7.1 million euros average in the first half of 2020.

Manon Kuipers: "Besides the record investment volume, the first six months of 2021 were also characterised by a shortage of new investment opportunities in the market. This may lead to a lower transaction volume in the second half of the year. The number of care homes for the elderly needs to be substantially increased in the coming years. If developers, housing associations and investors apply larger scales in the realisation of new-build projects, we can prevent the shortages from becoming even worse."

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