CBRE Nursing Home Topic Paper 2014

The Nursing Home Sector Needs To Open Up To Investors In Order To Survive The Pending Supply Crisis

- As the 2015 HIQA Standards Deadline Looms, a Lack of Development Will Worsen the Supply Shortage of Nursing Home Beds

- By 2046 The Population of Over 65s is Set To Reach 1.45 Million Persons

Dublin, 28 September 2014 – Before the end of 2015 nursing homes across the country must be fully compliant with the 2009 HIQA (the Health Information and Quality Authority) standards for physical environments. As outlined in a new report by nursing home specialists CBRE, this includes standards such as a minimum floor space per single room, no more than four residents per shared room and a suitable ratio of toilets and baths per resident. While this is good news for the standard of health care offered to the public and for the 15% of the population that were aged over 65 years in the last census, CBRE nursing home consultants believe that this deadline will undoubtedly spell the end for many public and volunteer nursing homes across the country as well as some older private nursing homes, that simply cannot afford to renovate and upgrade their facilities on time. This will lead to a loss of nursing home beds at a time when the number of older people needing these facilities is increasing.

In their new report on the sector, property consultants CBRE, who specialise in the valuation and sales of nursing homes throughout Ireland, outline that the lack of new construction in the sector in the last number of years along with the inevitable closure of a number of nursing homes across the country following the HIQA deadline will cause the supply of nursing home beds to decrease rather than increase to cater for a rapidly ageing population. CBRE believe that a solution is possible, however action is needed immediately to alleviate this dilemma particularly as the CSO in their 2013 population projections estimate that the number of people aged 65 years and over will increase by 62% to over 860,000 persons by 2026 and could reach over 1.45 million persons by 2046.

John Hughes, Director and Head of Transactions, CBRE believes:

“The key to the evolution and longevity of the nursing home sector is to open up traditional ownership structures and funding to free up capital and improve the supply and quality of nursing home beds throughout the country. At the moment, the majority of private nursing homes in Ireland are operated under a traditional owner operator model, which means that all costs associated with buying, maintaining, staffing, upgrading or expanding a nursing home falls under the operator remit. This can be an obstacle to the development or improvement of the nursing home as the supply of available capital to carry out any changes is limited. We believe that the Irish nursing home sector should move towards a more European model in which the highly skilled operator is the tenant and a private investor or healthcare fund is the developer and owner of the building. This sale and leaseback structure would free up a significant proportion of capital for operators who could instead redirect it to expand and enhance their operation”.

Indeed, the report by global property consultants CBRE suggests that there is a huge appetite for quality health care and nursing home assets among investors throughout Europe. A lack of opportunities in their home market has driven US investors to look both at the UK and mainland Europe for healthcare assets which have scale, quality and risk adjusted income return. This has contributed to close to £7 billion being invested in the Healthcare sector in the UK between 2005 and Q1 2014. CBRE believe that there is an opportunity to get Ireland on the radar of these investors particularly due to the favourable growth in the ageing population.

Peter Lundy, Director and Head of Valuations, CBRE highlights:

“There is an opportunity for the nursing home sector to evolve and free up the capital needed to reduce the supply and demand gap for beds in the sector, however the main problem now is the lack of product being brought to the market. There has been virtually no sales of nursing homes in Ireland over recent years, which makes finding the value of assets in the sector, without referring to specialists, difficult. At present, the nursing homes valuation team in CBRE carry out the majority of valuations on freehold/long leasehold properties using a complex methodology using variables such as an income capitalisation method, trading details and the supply of nursing homes in the surrounding environs. We can see the potential out there for the sector, however the key now is for owner operators to evolve their structure and free up their capital and expertise.”

About CBRE Group, Inc.
CBRE Group, Inc. ((NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2013 revenue). The Company has approximately 44,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through approximately 350 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.

In Ireland, with offices in Dublin and Belfast, CBRE is the country’s largest commercial real estate services company, now employing over 130 employees and offering a full range of property services including property sales and acquisitions, leasing and management, investment, corporate services, debt advisory, project management, consultancy, valuations and research. Please visit our website at www.cbre.ie or www.cbre.ie./ni

Media Contacts

John Hughes – Head of Transactions, Director 00 353 (0)1 618 5538 or e-mail:john.hughes@cbre.com
Peter Lundy – Head of Valuations, Director 00 353 (0)1 618 5587 or e-mail:peter.lundy@cbre.com
Suzanne Barrett – Associate Director, Research 00 353 (0)1 618 5738 or e-mail:suzanne.barrett@cbre.com

CBRE Nursing Home Topic Paper 2014
CBRE Nursing Home Topic Paper 2014