Research from Savills shows UK healthcare investment enjoys another record year
According to the latest research from international real estate advisor Savills, 2018 investment volumes in to the UK elderly / long-term care sector surpassed the levels achieved the previous year by 58%, setting a new record in excess of £1.2 billion. In addition, the firm reports overall healthcare investment volumes also increased in 2018, recording a 3.6% yoy growth, with buyers attracted to the long leases and indexed rental uplifts found within this market.
Chris Wishart, healthcare director at Savills, comments: “The healthcare sector is regarded by many as being resilient and stable. When coupled with underlying drivers such as long lease lengths, indexed reviews and range of underlying income sources, it’s easy to understand why it is becoming increasingly popular with investors. Furthermore, when you consider the market drivers, which include an aging population putting increasing demand on healthcare services and specialist accommodation, there is every reason to see the popularity increasing.”
Savills notes that the increased investment volumes into the elderly / long term care sector was, in part, due to a number of sizeable portfolios changing hands, which boosted the capital value of deals within this market. In terms of buyer profile, the elderly / long term care sector saw overseas investors make up 71% of transactional volumes by capital value last year, these buyers only accounted for 8% of actual deal volumes. It was instead the UK institutions that accounted for the majority of transactions at 58% of total deal volumes in this sector.
The research also confirms that the number of assets traded within the primary care sector increased in 2018 by 20%, despite a decline in the number of deals. Overall it was the three largest listed property investors in the primary care sector, Assura plc, MedicX and Primary Health Properties, that continued to lead buying activity, increasing their dominance in the market to take 79% in capital value terms in 2018, compared to 49% the previous year.
Chris continues: “With investor demand seeking secure income streams Primary Care is considered as an area of the healthcare market which provides this offering quasi Government backed income. With a rent reimbursement to GP’s provided by the NHS, rental income is considered to be very secure and as a result we have seen buyer appetite increase putting downward pressure on prime yields, which currently stand at 3.75%.”
In contrast to the strong activity in the healthcare investment market, Savills also warns that a lack of available stock is a restricting factor. However, the growing popularity of smaller operators who have assembled high quality portfolios and then transfer a leasehold interest to stronger covenants prior to selling the freehold investment, as a strategy to see enhanced capital values upon exit, could be a catalyst to delivering product much sought after by investors. In the meantime, the firm highlights that the shortage of high quality stock will maintain strong pricing with some further yield compression expected.
Looking forward, Savills expects the retirement / senior housing market will gain more momentum as the development of a Senior Private Rented Sector model starts to take shape, in order to satisfy the appetite of the investment community who see this as an incredibly exciting sector.
Craig Woollam, head of healthcare at Savills, says: “The big sector to look out for is the retirement/senior housing market. Investors eager to find a foothold will look to how the traditional PRS and Student Housing markets have evolved and know that getting in as early as possible can prove fruitful. With no product to speak of available to investors, JV’s, development funding and operators aligning will undoubtedly be the areas to watch in 2019.”