HEALTHCARE
Keypoints
- Investment volumes continue to lag
- Shift in initial yields
- Clustered housing to facilitate and reform healthcare
- Financial pressures but also solutions
- Long-term (healthcare) housing demand continues to grow
Investment volume still lagging
The third quarter did not see a continuation of the recovery in the investment market for healthcare real estate. The total investment volume in healthcare real estate in the quarter was only €106 million, significantly lower than in the previous quarter (€234 million) and the same quarter last year (€260 million). Cumulatively, the total investment volume at the end of the third quarter was €424 million, slightly higher than in the first three quarters of 2023. Although there is a chance that the 2023 investment volume will be exceeded by the end of 2024, a return to transaction volumes of around €1 billion per year is not yet in sight.
INVESTMENT VOLUME HEALTHCARE (€, BILLIONS)
Source: CBRE (2015-2018), Capital Value (2019-2024), edited by Achmea Real Estate
Private nursing homes and primary care attractive
The most attractive segments within healthcare real estate are currently private nursing homes and primary healthcare centres. Compared to previous years, these segments account for a relatively large share of the total investment volume in 2024. The increase in investment in primary care centres this quarter is partly due to the sale of an existing portfolio. Both segments are characterised by relatively manageable investment volumes per transaction, making them attractive to both private and institutional investors.
Larger extramural and intramural healthcare complexes, with their large investment volumes, require a longer planning horizon and construction time. The main sellers of healthcare real estate this quarter were mainly listed real estate funds, possibly due to more expensive refinancing.
SHARE INVESTMENT VOLUME BY SEGMENT (%)
Source: Capital Value (2024), edited by Achmea Real Estate
Shift in initial yields
Last quarter we already saw a stabilisation in initial yields. This quarter, initial yields for the best extramural and private nursing homes have actually fallen slightly. These declines are not only due to the popularity of the segment, but also to developments in the interest rate market. Compared with the peak in 2022, initial yields are still 40 to 70 basis points higher.
YIELDSHIFT 2024 Q3 (%-POINT)
Source: Capital Value (2023), edited by door Achmea Real Estate
Total return positive again
Both indexed rents and stable to tightening initial yields are contributing positively to the performance of healthcare real estate. This effect is already visible in the MSCI institutional real estate benchmark, where the combination of direct rental income and indirect valuation returns turned positive in Q2 2024. Healthcare property remains one of the best performing property segments. A further recovery in returns is expected for the remainder of 2024.
TOTAL RETURN (% ANNUALISED, Q2 2024)
Source: MSCI Netherlands Quarterly Property Index
Clustered housing to facilitate and reform healthcare
In August and September 2024, the Dutch Health Care Authority (NZa) and the Dutch Health Care Institute called for reforms in the healthcare sector. The NZa emphasised that health insurers must take responsibility for improving the quality of home care, especially for elderly people with VV4 indications, as the current policy is not sufficient. Health insurers must promote new forms of residential care for the elderly that better meet the needs of elderly people living at home. At the same time, the Dutch Health Care Institute has called for a reform of the Long-Term Care Act (Wlz) to put more emphasis on informal care through social networks before formal care is used. These calls create opportunities for extramural elderly care housing concepts that better meet the changing needs of seniors.
In October 2024, the NZa recommended strengthening regional cooperation in healthcare through transparent regional plans and better involvement of local residents. This creates opportunities for healthcare property investors to address regional challenges such as capacity shortages and an ageing population.
The Schoof Cabinet's 2024-2025 government programme emphasises the construction of 290,000 care homes for the elderly by 2030. These clustered forms of housing are designed to meet the growing need for care and are part of the strategy to promote decent housing and turnover in the housing market. Since the launch of the WOZO (Housing and Care for the Elderly) programme, several regional initiatives have been supported that focus on age-friendly housing. Dutch health insurers (ZN) see this as an opportunity to improve access to care, which is attractive to healthcare real estate investors.
Financial pressures but also solutions
The financial position of healthcare organisations appears to have improved slightly in 2023, with rising results and falling absenteeism rates. However, the EY Healthcare Barometer highlights that this progress is somewhat exaggerated and that the sector still faces structural problems. Gross operating profit (EBITDA) has remained almost stable, making it difficult for healthcare institutions to invest in the renewal and sustainability of their buildings. This poses a risk to the financing of new healthcare properties. Increased expenditure on outsourced staff further exacerbates the financial pressures, making the long-term sustainability of healthcare institutions vulnerable. Although the number of bankruptcies in the healthcare sector is still relatively low, recent figures show a rising trend.
Despite the financial pressures, there are also positive developments, such as the introduction of a hybrid GP care layer by the healthcare provider tanteLouise in collaboration with local general practitioners. This initiative aims to relieve pressure on GP services by facilitating digital triage for vulnerable older people living at home. The use of digital consultations speeds up care processes and offers opportunities to improve efficiency and access to care. This approach is being expanded in the West-Brabant region and could have a positive impact on demand for flexible healthcare real estate solutions that fit into hybrid care models.
HEALTHCARE BANKTRUPTCIES (2 QUARTER MOVING AVERAGE)
Source: CBS (2024), edited by Achmea Real Estate
In 15 years, there will be
more people aged 75 and older than there are now
Demand for long-term (healthcare) housing continues to grow
The shortage of suitable homes for care continues to be a challenge that is closely aligned with the government's policy objectives. According to Capital Value, the construction of care homes in 2024 has fallen well short of targets. Only a fraction of the planned 35,000 new care homes per year are being built. Major investment is needed to increase capacity, as small-scale projects are insufficient to meet growing demand.
The wider housing market also faces significant challenges. According to ABF Research's latest Primos forecasts, nearly 993,200 new homes will be needed nationally by 2031 to meet housing demand. There is currently an acute housing shortage of more than 400,000 homes across the country, with the Randstad region in particular experiencing a deficit of 232,000 homes. This situation is exacerbated by demographic trends such as an ageing population and a growing number of households. The number of people aged over 75 is expected to increase by 799,000 by 2039, an increase of 45%. Many of these older people must continue to live independently due to limited residential care home capacity, while waiting lists for residential care remain long. The combination of population growth, individualisation and ageing is increasing the demand for suitable housing, especially in urban areas. At the same time, the policy objectives outlined in the Government's 2024-2025 programme provide a clear direction: the development of 290,000 care homes by 2030. Incentives and subsidies can make the construction of clustered and age-friendly housing attractive.
Healthcare real estate has a key role to play in relieving pressure on the housing market while offering investors an attractive return. The integration of care and housing is becoming increasingly important to provide the elderly with appropriate support and living conditions.
WAITING FOR LONG-TERM CARE HOUSING (Q3 2020 = 100)
Source: Zorginstituut Nederland (2024), edited by Achmea Real Estate
Outlook
Last quarter, we highlighted a gradual recovery in the healthcare real estate investment market. This is now partly visible in the tightening of some prime initial yields. However, overall investment volumes are still lagging, partly because listed healthcare real estate funds are selling properties rather than expanding their portfolios. In addition, current investments are more often focused on health centres and private elderly care, where smaller investment volumes are common.
Macroeconomic developments in recent years have slowed the planning and construction of new, larger healthcare property projects, resulting in a shortage of new-build projects. The limited availability of new healthcare properties and the fact that not all investors have returned to full investment capacity means that the recovery in the investment market will continue to be slow and gradual in the coming quarters. Nevertheless, underlying demand from consumers and care users remains strong, creating opportunities for investors who can respond to market demand and find suitable supply.
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