HEALTHCARE
Keypoints
- Investment volume remains low
- Prime initial yields continue to rise
- Population projections and housing demand revised upwards
- Calls for cuts and changes to healthcare
- Continued pressure on healthcare finance
Investment volume remains low
In the third quarter, the investment volume was over 200 million euros. This is in line with the average third quarter investment volume over recent years. The picture is somewhat distorted by the limited number of transactions in the quarter. In particular, there was one large portfolio transaction in the private residential care segment. The quiet investment market is illustrated by the fact that the total investment volume in the first three quarters of 2023 was only 316 million euros. This is only 22 per cent of the total investment volume in the peak year 2022. It is not a complete standstill, but the investment market is currently in very quiet waters. A new balance between supply and demand has clearly not yet been found. Financing rates and yield requirements are rising, while construction costs remain high.
HEALTHCARE INVESTMENT VOLUME BY QUARTER (X € BILLION)

Source: CBRE (2015-2018), Capital Value (2019-2023), edited by Achmea Real Estate
Prime initial yields continue to rise
In the third quarter, prime initial yields for the various healthcare property segments increased by 10 to 15 basis points, as expected. Contrary to expectations, long-term interest rates also rose further during the quarter. Interest rates on 10-year Dutch government bonds, which had previously been expected to peak at 2.79 per cent, rose further to 2.95 per cent. In the fourth quarter, Oxford Economics expects a further rise to 3.29 per cent. Given the typically slow reaction of initial yields to changes in risk-free rates, the likelihood of a stabilisation in the coming quarters seems limited. Further increases are likely.
YIELDSHIFT Q3-2023 (IN %-POINT)

Source: Capital Value (2023), edited by Achmea Real Estate
* Peak Private nursing homes was in 2022 Q3
Population projections and housing demand revised upwards
There is no shortage of potential users in the housing market, including healthcare real estate. Partly as a result of immigration, population growth has been revised significantly upwards. The population is expected to grow by 861,000 (4.8 percent) up to and including 2030. At the beginning of the third quarter, ABF Research calculated that the number of households would increase by as much as 7.3 percent during this period. In addition to population growth and a faster decline in average household size, the Ministry of Health, Welfare and Sport's Housing, Support and Care for the Elderly (WOZO) programme will also contribute to growth. Since this policy requires that the capacity of nursing homes be maintained at around 135,000 places, the elderly, who are often single, will have to live in extramural housing. This means an additional demand for housing of 27,000 households in a tight housing market. The statistical housing shortage has risen from 315,000 to 390,000 homes by 2023 and amounts to 4.8 per cent of the housing stock, with 2 per cent considered a healthy level. These developments have increased the long-term need for additional housing units. In the Ministry of the Interior and Kingdom Relations' housing programme for 2021 to 2030, the need for new housing units has increased from 900,000 to 981,000. Most of the growth will be among the elderly and single households. According to ABF Research, the number of households aged 65 and over will increase by 877,000 (36 per cent) over the next 15 years. The waiting list for long term care with accommodation rose slightly again in the third quarter to 24,300 waiting people. It concerns people with higher care needs for whom extramural accommodation should be available in the future.
WAITING FOR LONG-TERM CARE HOUSING (2020 Q3 = 100)

Source: Zorginstituut Nederland (2023), edited by Achmea Real Estate
Calls for cuts and changes to health care
In the third quarter, senior civil servants in various ministries have signalled the need for further cuts in health care to prevent uncontrolled growth. The Study Group on Budgetary Space (SBR) calls for structural reforms. The Interdepartmental Policy Research (IBO) also outlines so-called redeployment paths to limit the growth of spending on care for the elderly. The main thrust of the advice is that care needs to be more efficient and more personal responsibility and contribution is required. The Dutch Health Care Authority (NZa), in its report Separating Living and Care, also states that the current organisation of long-term care is not future-proof. The principles of the WOZO: 'self if you can, at home if you can, digital if you can' need to be made more concrete in the law. In the run-up to the election, the proposed cuts will undoubtedly become an issue for different political parties. What is clear is that decent housing helps to reduce the need for care and the scarcity of resources and people. Institutional investors can play an effective role in providing appropriate housing solutions.
Continued pressure on healthcare finance
User demand for healthcare real estate is strong, but times are tough for operating healthcare providers. This is evident from various parties' analyses of financial reports from different healthcare sectors. Solvency and liquidity are often in order, but operating income and margins in particular are suffering from sharply increased costs. Personnel costs in particular have become more expensive due to collective wage increases, the hiring of "non-salaried personnel" (PNIL) and absenteeism. At the same time, tariffs have not been fully adjusted for inflation. The accountancy firm BDO notes that this is preventing hospitals from innovating and transforming. According to Intrakoop, a purchasing cooperative for care organisations, more and more organisations in the nursing and care home sectors are operating at a loss. In-depth research by consulting firm Vardetun shows that differences in the financial performance of healthcare organisations can often be traced back to differences in cost management. For example, in personnel management, real estate policy and strategic focus. But also whether this is done on a permanent basis or on an ad hoc basis. BDO warns of financial problems in elderly care.
HEALTHCARE BANKTRUPTCIES (2 QUARTER MOVING AVERAGE)

Source: CBS (2023), edited by Achmea Real Estate
Outlook
The demand for healthcare real estate remains high in both the short and long term, but there is a great need for structural change in the healthcare sector. Innovative care concepts, to which real estate can make a valuable contribution, are needed to meet demand and rising costs. In the short term, healthcare providers are struggling with staff shortages. In the investment market, institutional investors need to adjust to the higher interest rate environment. Rising interest rates continue to push up yields. As a result of higher yield and financing requirements, and the continuing high cost of new construction, transaction volumes will remain below the average of recent years for some time to come.
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