Lifento, a pure-play healthcare real estate management company, publishes the results of its study of the healthcare real estate market in Europe by real estate consultancy JLL. There are several main lessons here: a boom in liquidity and opportunities with attractive returns and remarkable market stability, especially compared to tertiary real estate.
- + 115% of the volume invested on average per year in healthcare real estate in Europe from 2018 to 2022 compared to the period 2013-2017;
- €1.6 billion invested annually in French healthcare real estate between 2018 and 2022, ranking France second only to Germany;
- Between Q1 2022 and Q3 2023, office yields in France decreased by 150 bps, while EHPAD and clinics decompressed more modestly by 50 bps to 4.50% and 4.75% over the same period;
- Volumes invested in healthcare assets in 2023 (as of 9/30/2023) fell 26% compared to the same period in 2022, compared to a 63% decline in office real estate.
An increasingly liquid market
In recent years, the healthcare real estate investment sector has matured and significantly increased its liquidity, marking a transition from its initial perception as a niche market in the early 2010s.
On the one hand, healthcare goods and services are constantly increasing in line with the growing proportion of the population aged 65 and over in Europe. On the other hand, the Covid-19 crisis has put health at the center of attention for states, which, with the aim of ensuring health sovereignty and better responding to future epidemics, have increased public spending in favor of the health sector.
Between 2018 and 2022, the average annual volume of investment therefore increased considerably, with €5.7 billion invested in the markets surveyed (France, Germany, Belgium, Italy, Spain and Portugal) during this period, compared to €2.6 billion between 2013 and 2017. .
This increase in liquidity is evident in all markets, although their size varies. The German market leads in the period 2018-2022 with an average of 2.5 billion euros per year, followed by the French market (1.6 billion euros), the Spanish market (690 million euros) from the Belgian market (430 million euros), the Italian market (380 million euros) and finally the Portuguese market (150 million euros).
More attractive and less volatile rates of return than in the tertiary sector
First-class yields of accommodation facilities for dependent seniors (EHPAD) reached a minimum level of 4% in France and 3.90% in Germany at the end of the first quarter of 2022. Similarly, in France, top-line revenue clinics saw a squeeze during the first quarter. in the same period, which at the end of the first quarter of 2022 was 4.25% for SSR/Psych clinics and 4.75% for MCO (Medicine, Surgery, Obstetrics) clinics.
Moreover, even with slower decompression, healthcare assets remain more attractive than office by offering a higher risk premium compared to 10-year Treasuries. In France, this risk premium is 137 basis points for EHPAD, 162 basis points for SSR/Psych clinics and 187 basis points for MCO clinics, compared to only 87 basis points for offices. In Germany, EHPADs have a risk premium of 235 basis points compared to 150 basis points for offices.
Finally, healthcare assets have demonstrated their defensive nature and have shown lower volatility in rates of return. Between Q1 2022 and Q3 2023, the base rate for offices in France decreased by 150 basis points, while the rate for EHPAD and SSR/Psych clinics over the same period saw a more modest decompression of 50 basis points to reach 4.50% and 4. 75%. respectively (and 25 basis points for MCO clinics, amounting to 5.00%). In Germany, the decompression of base rates for offices was 155 basis points compared to 100 basis points for nursing homes, reaching 4.90%.
A market destined for expansion
Another specific feature of the healthcare real estate market sought by investors is its diversification and defensive nature compared to office assets. In fact, often and in order to generate capital to finance their development, healthcare operators outsource their walls to long-term partners by signing leases that can last up to 30 years (depending on the context and country). , which is a factor. stability and ensures a predictable return for investment funds.
Across the 6 markets surveyed, volumes invested in healthcare assets in 2023 by the end of September represented a decline of only 26% compared to the same period in 2022, compared to a 63% decline for offices.
“In light of an aging population and investors’ diversification imperatives, healthcare real estate is destined to play an increasingly dominant role in their allocations in the coming years.r, specifies Frédéric Delleaux, founding partner of Lifento. Additionally, real estate held by healthcare operators remains significant, further ensuring outsourcing potential for years to come. Opportunities could also arise from the private not-for-profit sector and public hospitals through sales, transfer leases or sale and leasebacks, generating large-scale transactions.”.