European care home investment volumes increase by 60%, says Savills

European care home investment volumes reached approximately €2.6 billion during the first half of 2016, which is 60% higher than the same period in 2015, according to research from Savills. The international real estate advisor notes that the strong activity levels so far in 2016, suggest that the full year investment figures could reach €3.5 billion in Europe, which would exceed the 2015 figure of €3 billion.  This increased appetite from investors has had an inevitable downward pressure on prime care home yields in Europe, which currently range between 4.4% and 7.5% depending on country, location and quality of asset. Savills expects these prime yields to harden further over the next 12 months as a result of continued competition for assets in the care home arena.

In particular, Savills research shows the areas that saw the highest levels of activity during H116 were France (€878 million), Germany (€870 million), the UK (€244 million) and Sweden (€116 million). Major deals so far this year have included: the sale of the Gecimed Portfolio in France; the sale of the Pegasus Portfolio in Germany for €421 million and the sale of the TSC Senior Housing portfolio in Germany for €138 million.

Colin Rees-Smith, healthcare director at Savills, comments: “Over the past 12 months we have seen a surge in transaction levels in the care home sector throughout Europe as a result of externalisation strategies from operators and consolidation of large portfolios between active investors in the care home market. The sector itself really emerged as an asset class in 2012 when we saw European investment volumes triple. In fact, the four-year annual average volume recorded prior to 2012 was €315 million, while the same figure for the four years post 2012 is €2.8 billion, which highlights the increasing demand for this type of asset.”

In line with the predicted increase in overall care home investment volumes across Europe for 2016, Savills expects total year end transactional activity in the key markets to reach: €1.3 billion in France; €1 billion in both Germany and the UK respectively and €300 million in Sweden.

Lydia Brissy, European research director at Savills, says: “Care homes have become popular with investors over recent years for a number of reasons, but the main factor is that they provide an opportunity to generate greater diversification whilst still avoiding fierce opposition for competitively priced traditional asset classes. In addition, the ability to track inevitable long-term trends in the sector, most notably demographic changes, is also an appealing aspect for investors. The ageing population in Europe, coupled with the profile and affluence of the ageing ‘baby boomers’, means that there is a need for good quality healthcare facilities offering a wide spectrum of services and support.”

Savills research shows that by 2025, more than 20% of Europeans will be 65 or over and the number of people aged 85 years or over is projected to increase from 14 million to 19 million by 2020 and to 40 million by 2050. Based on analysis of the varying demographics across Europe, the total expenditure on healthcare across the continent and existing provisions for residential long-term care, Savills has revealed that the top five countries for investors to consider moving forward are the Netherlands, Germany, Denmark, Finland and France.