Feature article: Stan Campbell of DAC Beachcroft and Lydia Brissy of Savills examine healthcare real estate trends in the UK and Europe



There have been two major disruptors in the UK and European markets in recent years: Brexit and the Covid-19 pandemic have impacted investment trends and pushed investors to take a closer look at healthcare real estate like an asset class, an asset class that now competes only in logistics. Stan Campbell, Partner at DAC Beachcroft, and Lydia Brissy, Director of European Research at Savills, discuss the future of healthcare real estate in the UK and Europe, and what it means for lending investors. ‘to come up

A mixed landscape of opportunities

The full spectrum of healthcare real estate is extremely broad, encompassing buildings and facilities ranging from general practitioner practices, hospitals (private and public) to senior housing and nursing homes – to name but a few. a few, and each of those areas will be subject to different trends. as the future unfolds.

A key theme discussed was whether the development of “appropriate sites” for healthcare potential could include new downtown projects to reallocate redundant retail, office and hospitality space. These schemes would require innovative solutions to maximize space and, as one expert said, it would require vertical thinking (going higher).

While each aspect of the healthcare market is influenced by its own specific conditions, a consistent theme here, and in many healthcare real estate predictions, is flexibility: institutions will need to adapt to future ways of working and allow the adoption of all new technologies. that can materialize.

Government policy presents other areas of growth in the UK

The government also appears keen to invest in healthcare, with initiatives such as the ‘new hospitals program’ – which was introduced by the government following its manifesto in light of the Brexit vote in 2016 – designed to offer a new world – class hospitality facilities in the UK, setting the tone for the development of healthcare real estate over the next few years.

At the same time, emerging market conditions such as the government’s recent announcement of its intention to raise UK NI tax by 1.25% to fund healthcare and social services will also stimulate interest. for this sector.

At first glance, this new investment looks promising, and we would certainly say it is a necessary step in the right direction. However, while the funding looks impressive, it is a drop in the bucket for the NHS and its estate. The New Hospitals Program aims to build 40 new hospitals by 2030, with a budget of £ 3.7 billion (US $ 5 billion). However, the cost of a single new hospital built is expected to exceed £ 1 billion.

Government money, as Naylor mentioned in his 2017 review, is not and cannot be the only answer – to transform the field, private sector investment will be needed and as an investment proposal the domain of the NHS, with its reliable long-term government-backed returns. , is a very attractive proposition.

There is no desire to sell the NHS, it is one of our national treasures, and should be protected, but maybe there is interest in developing a shorter investment term. Something that allows investors to leverage the value of the estate for a period that would free up capital for the NHS to use.

Whatever the solution, it will have to be new and collaborative and very different from the failed PFI schemes of the past. If this can be found, the public and private sectors will thrive.

Growth in Europe

When it comes to trends in the UK and Europe, ‘pandemic resistant’ investment choices are heavily considered, often moving away from worst affected sectors such as retail and towards investments in health care in general, as well as supported housing or housing with care.

A Financial Times article from March this year said commercial tenants paid only one-fifth of the rents owed, compared to the supported housing sector, where companies like Civitas have repeatedly reported strong results. At the end of the first quarter of 2020 Civitas Social Housing reported that it had received 99% of its rents, and at the end of November 2020 it was again reported that: “The rental income of Civitas Social Housing grew 6% in the six months ended Sept. 30 and it remains optimistic about its outlook for next year, seeing “compelling opportunities to invest more”.

Healthcare real estate currently offers similar reliable returns for investors, especially when it comes to residential care and supportive housing.

The surprising robustness of the elderly care sector

After the onset of Covid-19, it was speculated that the elderly care sector would be decimated, with nursing homes and senior residences losing a significant percentage of service users / occupants over a short period of time.

However, far from underlining its vulnerability, the sector rebounded quickly and, according to Lydia Brissy, director of European research at Savills’, their latest report, European Senior Housing & Care Home Investment, underlines that “the strong reactions of operators have allowed to reinstate the health and safety of residents. With admissions and an occupancy rate rapidly returning to pre-pandemic levels ”. Looking ahead, with the rapidly aging population in the UK and Europe, the ‘fundamentals of the senior housing sectors are strong, based on long term demographic changes’.

Over € 4 billion was invested in senior housing and retirement homes across Europe in the first half of 2021, the report says, a six-month record high and 38% above the average for the past five years. The Covid-19 has not affected the interest of longer-term investors, whether in Europe or the United Kingdom, and despite the fragility of care homes, market operators have reacted quickly, proving their resilience and remaining attractive to investors.

At the same time, the looming crisis of population aging in Europe (and the UK) will create many opportunities for further investment and reliable growth over the coming decades. Although the timing varies from country to country, this will ultimately affect all of Europe, making retirement homes and nursing homes an attractive investment prospect with secure and long-term rental income.

Cross-border investments will continue to grow

Cross-border investments also continue to increase. In its report, Savills states that “cross-border investments have accounted for almost 60% of the total volume, a record share” since the start of 2021. The report also cites Belgium, France, Luxembourg, the United States and the United States. Sweden as the main players in cross-border capital.

Once again, it is the retirement home sector that is attracting more and more foreign capital, and countries like Italy and Spain, where the supply of residential care is limited, will have enormous potential. growth.

The UK is seeing this trend as well, and the impact of Brexit so far appears negligible and has not hampered any interest from Europe or the US.

Savills’ report on Europe states that “we expect investor interest in the sector to continue to grow and increased competition from US investors.” UK history will be no different. In fact, the UK healthcare system has a lot to offer potential investors, especially those looking for ‘pandemic resistant’ options, with publicly funded alternatives that look like more reliable options that offer solid returns.

Disruptions will always pave the way for new trends and it is clear that the elderly care sector will experience significant development in the long term, alongside increased cross-border investment.

What is most important is that the sector continues to look strong, especially for investors who have an eye on growth trends and are ready to seize opportunities as they arise.


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