HEALTHCARE

Keypoints

  • Transaction volume improved, initial yields remained stable
  • The Coalition Agreement promises improvement, doubts about feasibility
  • More clustered elderly housing crucial
  • General practitioner chain Co-Med bankrupt
  • ‘Buurtdokters’ for improvement in general practitioner care

The transaction volume improved and initial yields remained stable

In the second quarter of 2024, the investment volume in healthcare real estate rose to €194 million, marking a significant improvement compared to the first quarter and notably higher than the same quarter in 2023. The cumulative investment volume for 2024 now stands at €275 million, still below the historical average. The developments in the second quarter indicate that sustained investor interest has translated into transactions. There were relatively many transactions in the private residential care segment during this quarter.

INVESTMENT VOLUME (€ BILLION)

Source: CBRE (2015-2018), Capital Value (2019-2023), edited by Achmea Real Estate

In the previous quarter, due to a very limited number of transactions, there was an expectation of stabilization in prime initial yields, a trend confirmed in the second quarter. This stabilization has been gradually evident over the past quarters. On an annual basis, initial yields have increased only marginally. Compared to the peak in 2022, healthcare real estate initial yields have risen by approximately 60 to 70 basis points. This aligns with appraisals and valuations indicating stabilization or growth driven by rental increases.

YIELDSHIFT 2024 Q2 (%-POINT)

Source: Capital Value (2023), edited by Achmea Real Estate

With improving macroeconomic outlook, such as lower inflation and the first announced interest rate cut, we expect investors to gradually resume transaction activity. The spread of net returns, or the net operating income yield (NOIY), stabilized in 2023 after a sharp decline in 2022. The spread between the 10-year Dutch government bond yield and the NOIY of healthcare real estate is approximately 2.5 percent.

SPREAD NET OPERATING INCOME YIELD AND 10 YR DUTCH GOVERNMENT BOND YIELD (%)

Source: MSCI Netherlands Quarterly Property Index (2024), Oxford Economics (2024), edited by Achmea Real Estate

The Coalition Agreement promises improvement, doubts about feasibility

The coalition's new Main Lines Agreement 'Hope, Courage, and Pride' promises improvements but raises questions about feasibility. It introduces several policy measures that could impact the healthcare real estate market:

  • Strengthening primary care: Emphasizing improved collaboration among general practitioners, district nursing, and informal caregivers, which could benefit investments in healthcare real estate focused on primary health centers.
  • Remove emergency care from market forces: The coalition aims to remove emergency care from market forces and preserve regional hospitals. Although not directly relevant to healthcare real estate investments, the segment of clinics and specialized care remains unaffected.
  • Audit of cure and care: Evaluating the effectiveness of healthcare could affect healthcare providers but has no direct impact on the outlook for healthcare real estate investments, which remains focused on reliable tenants in primary care.
  • Investments in elderly care: Planned investments of €600 million per year from 2027 in improved elderly care could lead to expansion of institutional care places, offering potential growth opportunities for healthcare real estate investments.
  • Reduction in own risk: Lowering the own risk to €165 in 2027 is expected to increase healthcare demand, thereby boosting healthcare jobs. This could indirectly affect healthcare real estate due to rising demand.

The coalition's main lines agreement has elicited mixed reactions within the healthcare sector. Positive responses highlight the focus on staff shortages and lowering the own risk. However, many organizations express concerns about the lack of financial substantiation for key ambitions such as prevention and reducing health disparities. Without this backing, there are fears that the execution of the plans may be jeopardized.

CABINET-SCHOOF OFFICIAL PORTRAIT

Image: Valerie Kuypers

More clustered elderly housing crucial

In Amsterdam, like most places in the Netherlands, there is a growing demand for housing suitable for elderly residents, driven particularly by the significant aging population expected. The municipality has ambitious plans to expand the number of clustered elderly homes, such as the 'Long Live at Home Flats'. By 2030, Amsterdam aims to have thirty of these complexes completed. These flats are designed to facilitate home care, enabling seniors to live independently for longer in a safe and social environment.

Nationally, there is a notable shortage of suitable housing for seniors. The government aims to build 290,000 homes for seniors by 2030, but current construction plans lag far behind this ambition. Only a small percentage of new homes are currently designated for seniors, despite rapidly increasing demand due to population aging. Key challenges in the construction sector include rising building costs, lack of suitable building sites, and complex permit procedures. Additionally, financial regulatory measures, such as capped rents for private sector housing, can hinder investments in healthcare real estate.

The Healthcare Institute emphasizes the importance of appropriate residential care forms to alleviate pressure on nursing homes. Not all seniors with care needs require intensive nursing home care; many can be supported with suitable housing where home care is provided or in clustered living arrangements with guidance and daily activities. Despite a slight decrease, the pressure remains high on waiting lists for housing with Wlz care, with over 23,000 people currently waiting.

CLUSTERED ELDERLY HOUSING AND INSTITUTIONAL CARE HOMES IN DE MAKROON - AMSTERDAM

Source: Achmea Real Estate

WAITING FOR LONG-TERM CARE HOUSING (2020 Q3 = 100)

Source: Zorginstituut Nederland (2024), edited by Achmea Real Estate

General practitioner chain Co-Med bankrupt

In the second quarter, developments surrounding the Co-Med chain of general practitioners accelerated. Following the bankruptcy declaration of Co-Med's call center in April, the Inspection for Healthcare and Youth (IGJ) promptly issued an instruction to improve staffing and accessibility. In June, the chain was put in default by health insurers, leading to the suspension of agreements between insurers and Co-Med. Co-Med itself will file for bankruptcy. Meanwhile, IGJ, NZa, and health insurers are actively pursuing short-term and long-term solutions for patients. This entire situation underscores the challenges facing general practitioner care. Despite an increasing number of general practitioners, younger doctors generally prefer to work fewer hours compared to their older counterparts. Many opt for temporary positions or roles within chains to avoid the administrative burden of running a practice. The need for scalability and efficiency is inevitable. The Ministry of Health, Welfare and Sport (VWS), healthcare authorities, insurers, and specialists agree that healthcare must be reorganized to remain sustainable. Co-Med was a pioneer in this regard but has shown shortcomings in this phase. Owners of healthcare real estate with Co-Med as tenants will need to negotiate new lease agreements with succeeding general practitioners. While the ultimate impact on rental income streams is expected to be limited under market-standard leases, a period of uncertainty and active management will be required.

HEALTHCARE BANKTRUPTCIES (2 QUARTER MOVING AVERAGE)

Source: CBS (2024), edited by Achmea Real Estate

‘Buurtdokters’ for improvement in general practitioner care

An alternative and promising example to improve general practitioner care is the initiative of Buurtdokters (Neighborhood Doctors). Health insurer Zilveren Kruis has decided to financially support Buurtdokters to strengthen general practitioner care in their core regions. This collaboration marks a step towards sustainable improvement of general practitioner care, with specific focus on making practice ownership more attractive for young doctors.

Buurtdokters provides practical support to general practitioners, reducing their administrative burden and allowing more time for direct patient care. Zilveren Kruis's investment complements an earlier initiative by Buurtzorg, who are investing €900,000 in Buurtdokters. This partnership between Buurtzorg and Buurtdokters illustrates a shared vision for transforming healthcare, emphasizing efficiency and quality. Buurtzorg brings expertise from their experience in community nursing, enabling Buurtdokters to benefit from synergies and opportunities for further growth.

MEDICALCENTER IEPENHOF - WOERDEN

Source: Achmea Real Estate

Outlook

The prime yields have stabilized, with occasional room for slight compression in yields. Alongside the increasing investment volume, the path towards gradual recovery of the healthcare real estate investment market appears open. Given the gradual improvement in macroeconomic factors and the limited investment capacity of institutional investors, there will be no swift turnaround. The recovery will be slow, partly due to the scarcity of investment propositions desired by investors. Nevertheless, the market demand outlook for healthcare real estate users remains positive.

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