Knight Frank has reported a strong year for real estate healthcare investments with £1.32 billion ($1.83 billion) of transactions in 2017, an increase of 88 percent when compared with the 10-year average, according to the firm’s Healthcare Capital Markets – 2018 report.
Domestic purchasers of the healthcare market continued to dominate with 64 percent of investment from REITs and quoted U.K. property companies, followed by 12 percent U.K. institutions, and 12 percent private U.K. property companies, with just 2 percent from overseas investors.
“Last year was a strong year for healthcare investments. Investors, both domestic and international, sought defensive sectors to invest in, attracted by the long-dated income, typically comprising 30-year lease terms, with either Retail Price Index linked or fixed uplifts, the care home sector remains an attractive target for investors,” said Julian Evans, head of healthcare hotels & leisure, Knight Frank. “The sector’s institutional appeal is broadened by low yield conditions in both the bond markets and broader commercial property markets. The fundamentals of the care home sector remain robust.”
Prime healthcare yields range from 4 percent to 6 percent, dependent on factors such as tenant covenant, location and the level of acuity. Prime healthcare yields have compressed further for elderly care homes to 4 percent, driven by the current supply shortage in the market. With the entrenched crisis in U.K. care home bed provision showing no sign of abating, this will inevitably increase investor appetite, supporting further new entrants into the market and subsequently drive up prices to maintain the downward pressure on yields.
Evans, added, “The healthcare sector is one that is least affected by Brexit volatility, as demand for healthcare services is typically driven by domestic factors. Just weeks into 2018, healthcare transaction volumes have already reached £75 million [$104 million] and Octopus Healthcare has completed a fund raise of £85 million [$118 million] to focus exclusively on the U.K. care home market.”
