• 2018 transaction volumes set to eclipse those seen in 2017
  • Renewed role for debt as a funding source
  • Retirement villages firmly on investor map

As much as £13.5bn of equity could be invested in healthcare real estate this year, according to the inaugural Healthcare Investor Survey launched today by global real estate advisor CBRE.

The survey audited the intentions of the 50 major investors who dominate the market and own £16bn of assets between them. These range from healthcare REITs and institutional investors with healthcare exposure as well as those from the development sector and private equity community.

With so much capital to deploy, and now armed with deeper and more extensive market knowledge, institutional investors are dramatically expanding the range of asset types they will consider. 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%.

Of the key investors in the healthcare market, over three quarters (77%) defined themselves as a net buyer, as opposed to a net seller, which is not always the case in the investor market.

Tom Morgan, Senior Director, CBRE Healthcare commented
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.

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.”
Tom Morgan, Senior Director, CBRE Healthcare commented


Another significant trend to emerge from the study is the renewed role for debt as a funding source. This marks a change in outlook among institutions, which had previously eschewed gearing in relation to 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.

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, it was striking to see more than 40% of survey respondents quoting a yield figure of below 5.5%.

Tom Morgan comments: “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.

Tom Morgan concludes:

“We firmly 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 for ever.”