UK market to stablise after Brexit subdues investment
The European healthcare real estate market is expected to drop off over the next 12 months after a buoyant year, according to new research.
Your Care Consult this week announced the publication of its annual study of the European markets, which shows the UK is falling behind other countries in terms of investment.
Stéphane Pichon, managing partner, said: “The results reveal that, against a backdrop of historically-low interest rates, the search for secure returns via long leases once again boosted investment in the European healthcare real estate in 2016.”
In fact, the investment volume reached a record €6.7billion, up 10% compared with 2015, thanks to several ‘unique’ secondary deals in both France and Germany with cap rates significantly down.
A real pan-European market is being formed helped by the acquisition strategies of many European nursing homes operators and real estate investors.
The results reveal that, against a backdrop of historically-low interest rates, the search for secure returns via long leases once again boosted investment in the European healthcare real estate in 2016.
“Due to this unfavourable baseline, we expect the investment volume to be down to €5billion in 2017, with cap rates still decreasing.”
The market has enjoyed growth in investment volumes since 2014 and is characterised by nursing home operators and geographical diversification by healthcare-focused real estate investors, which are now investing in several European countries and, in secondary deals, sell assets to each other.
European insurance companies are also becoming increasingly active, revealing ambitions to invest in healthcare.
In 2016, European investors mostly favoured the markets of Germany (+100%), France (+50%) and the Netherlands (+30%), while activity was subdued in the UK, which was down by 60%.
The trend of sale and leaseback continues to dominate as it enables operators of clinics and nursing homes to dispose of their real estate in order to improve their balance sheets and free up cash for development.
With interest rates historically low, investors are taking a close interest in healthcare real estate, especially recent facilities operated by sector leaders with high-occupancy rates, secure rental income, and recurrent cash flow.
Unlike bank loans, where both the interest and the capital must be repaid, these agreements simply require healthcare companies to pay rent during the term of the lease.
The report states: “With interest rates historically low, investors are taking a close interest in healthcare real estate, especially recent facilities operated by sector leaders with high-occupancy rates, secure rental income, and recurrent cash flow.”
“Moreover, the lack of dynamism in the office rental market of continental Europe is impacting the strategies of real estate companies, who are now turning towards alternative assets, notably in healthcare real estate.”
While, 2017 is unlikely to be another record year, cap rates are expected to stabilise by the end of the year.
For the UK specifically, after a subdued 2016 which was hampered by Brexit, investment volume in 2017 is expected to be around €1billion.