As much as £13.5bn could be invested in healthcare real estate this year, according to CBRE’s inaugural Healthcare Investor Survey.
The survey audited the intentions of 50 major investors that dominate the market and own £16bn of assets between them.
These ranged from healthcare REITs and institutional investors with healthcare exposure as well as those from the development sector and private equity community.
Institutional investors were expanding the range of asset types they will consider, the survey found.
Where five years ago the “big three” asset classes – private hospitals, medical centres and care homes – might have accounted for 80%-90% of investor demand, today that figure has dropped to around 50%.
Paradigm shift
Tom Morgan, senior director, CBRE Healthcare, said: “It’s no exaggeration to say that this represents a true paradigm shift for the market, as well as a unique opportunity for owners and developers active in retirement villages, supported living and all the other sectors that were previously on the fringes but are increasingly being considered ‘core plus’ investments.”
Of the key investors in the healthcare market, around 77% define themselves as a net buyer, as opposed to a net seller, which is not always the case in the investor market.
Morgan added: “The structural change we are witnessing in the UK healthcare real estate market is no overnight success. It has been a ‘five-to-ten’ year process, as institutional investors have familiarised themselves with the way different sectors of the market operate and their associated risk/reward profiles.”
Another significant trend to emerge from the study is the renewed role of debt as a funding source. This marks a change in outlook among institutions, which had previously eschewed gearing for healthcare real estate acquisitions.
While “all cash” remains the single biggest preference, at almost 32%, it is outscored two-to one by the aggregate of the various forms of debt financing being utilised.
Retirement villages
The arrival of institutional capital into retirement living was one of the big market trends from the last year. Though only a relatively small number of major investors have been active in the retirement village sector to date, more than 40% of survey respondents quoted a yield figure of below 5.5%.
Morgan added: “With such severe stock shortages in this asset class, this can be seen as more of a development finance story, which is good news for ambitious operators with strong track records and a risk profile suitable for an institutional investor.”
Looking further ahead, the ongoing development of the UK healthcare real estate market will be tied to the continuing integration between the public and private sectors. The more that private healthcare assets are integrated into their local healthcare economy – and the greater the willingness shown by the NHS to work with the private sector – the more security such assets will offer to the long-term real estate investor.
Morgan said: “We believe that 2018 will prove to be a genuine ‘sweet spot’ for asset holders seeking to sell into the UK healthcare real estate market. Like all sweet spots, however, it cannot and will not last forever.”
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