Care home market posts another year of growth in Germany
The German market for care home real estate investment continued to grow in 2017, posting transactions worth over €1 billion ($1.23 billion).
Although much lower than the previous year’s €3 billion ($3.7 billion) record high, 2017 still saw the market deliver its third best result since records began, according to CBRE. The figures mean that the relative share of the care home real estate asset class in the overall transaction volume in commercial real estate stood at 1.8 percent last year. The transaction volume for the care home sector has increased every year by an average 20 percent since 2008.
“As we predicted halfway through the last year, investment momentum returned to more normal levels over the course of 2017,” says Jan Linsin, head of research at CBRE Germany.
“But even without large property transactions, the care home market remains a growth market. The transaction volume has increased every year by an average 20 percent since 2008. A number of partly very small unit individual transactions in particular kept investment momentum high and above average.”
Strong momentum has also been observed on the care facilities operator market. Sale of the retirement home operator Alloheim von Carlyle was sold to Swedish private equity investor Nordic Capital, and Vitanas Holding and Pflegen & Wohnen were both taken over — the latter partially and the former fully — by Oaktree Capital, the U.S investor.
“Even if we do not expressly count these transactions toward conventional real estate market transactions, which means they are not added to the investment volume, this is an indication that the market is developing dynamically and that consolidation on the care home market is in full swing,” adds Linsin.
CBRE registered just under 80 real estate transactions in the sector, a good two-thirds of which were sold as single deals. Of this figure, 42 percent involved purchase prices below €10 million ($12 million), with another 43 percent involving purchases of up to €20 million ($25 million).
Dirk Richolt, head of real estate finance at CBRE Germany, says: “Supply recently consisted of very small units — larger portfolios were more of an exception in 2017. Nevertheless, the demand of institutional investors for well-positioned care home portfolios continues to run high and is meanwhile accompanied by a lack of adequate supply, similar to the other asset classes of the commercial real estate sector.
“On the one hand, there is no great pressure on care home portfolio holders to sell — some operators are even endeavoring to buy back properties instead of entering into sale-and-lease-back transactions — while, on the other, the low level of new construction makes for a limited product supply. Consequently, the pressure on yields, particularly in the case of first-rate core products, remains high, and net initial yields will continue to be pushed lower.”
At the end of 2017, the net initial yield for premium care homes came in at 5 percent compared with 5.5 percent the year before. By contrast, this figure stood at 6.25 percent at the end of 2015.
