• Transaction volume at around €863 million in the first half-year – prior-year figure already exceeded by mid-year

• Large-scale portfolio acquisitions dominate German nursing care property market

• Players from the Benelux countries feature as strongest international buyer nation

• New record figure of significantly more than €1 billion anticipated by year-end 2016

Following a strong start to the year, the investment market for nursing care property and retirement homes in Germany continued its stellar performance. According to an analysis prepared by commercial real estate services company CBRE, a transaction volume of around €863 million was registered at mid-year 2016. Thanks to the second strongest quarterly result since records began, €725 million more were invested compared with the prior-year figure.

Portfolio acquisitions determine market activity
The high investment volume was realised first and foremost through numerous portfolio disposals. Funds of €615 million were invested in 30 portfolio transactions, bringing the share of portfolios to more than 71 percent. In the first half of 2015, this figure was considerably lower, with the sale of portfolios accounting for around 21 percent. Three large-scale transactions alone, each worth considerably more than €100 million, together amounted to €477 million, which equates to 55 percent of the investment volume. This also includes a portfolio sold by Corpus Sireo to the Burkert Group.

First half-year dominated by domestic players – investors from the Benelux countries ramp up their investment activities
“Even if German investors in particular were very active on the German market for nursing care property in the first half of the year, accounting for around two thirds of the transaction volume with investments of some €584 million, we are still seeing a great deal of interest by players from the rest of Europe and increasingly from non-European countries,” explains Linsin. “Excluding the portfolio acquisitions by the Burkert Group and the purchase of a nationwide portfolio of nursing care homes by a special fund managed by Intreal, the proportion of foreign capital would have amounted to 60 percent,” adds Linsin. In terms of cross-border investment, the domestic market was dominated above all by players from the Benelux countries in the first quarter, as nursing care and retirement homes are a separate, established asset class which has proven its worth in their home markets. “Investors from Luxembourg and Belgium have sought an alternative in German social and health care properties for the purpose of diversifying their real estate portfolios. They raised their allocated capital almost tenfold, above all through the acquisition of a large portfolio from AG Real Estate and Cardif Lux Vie worth €138 million, and have therefore impressively underscored their interest in German social and health care properties,” adds Richolt. Next come players from the U.K., followed by investors from Sweden.

Trading in existing stock dominates
“Our forecast calculations show that there is a great need for nursing places in Germany. In the conurbations where nursing places are in short supply, however, planned property developments of nursing homes compete with residential developments that are affected by the high price of land and shortage of sites near the cities,” explains Linsin. “As, due to the increase in the capital value per square metre in the residential market, new build nursing homes and retirement homes are only occasionally financially viable wherever residential rent is less than eight euros per square metre, well-positioned and established existing stock is playing an increasingly important role in the eyes of investors,” Richolt states. Against this backdrop, it comes as no surprise that a look at registered transactions shows that only seven percent was invested in nursing care property developments that were bought even before completion.

Yield advantage compared with traditional property asset classes elicits greater interest on the part of investors – year-end result anticipated in the seven-digit range
“It was already apparent in our survey conducted right at the start of the year that institutional investors consider Germany as the most attractive and safest target market for property investment, so the currently high transaction volume comes as no surprise,” Richolt says. “Driven by strong demand accompanied by a shortage of traditional commercial property, such as office or retail, alternative investment in health care and social properties is increasingly attracting the attention of investors. This approach allows higher risk-adjusted returns to be realised with German nursing care property,” Linsin explains. In comparison with the traditional asset classes, the prime yields of six percent for state-of-the-art nursing homes are 240 basis points higher than premium properties in the office or retail segment, such as, for instance, in Munich. “In addition, other aspects indicate the advantages of investing in nursing care properties: A rising number of new investors on the lookout for alternative investment property take a more positive view of the nursing market than in the past, not least due to the maturing of the operator market. These investors are turning their attention to this niche product, mainly encouraged by the long-term leases and rising occupancy rates,” Richolt comments. “Despite greater investor interest and greater pressure on yields, investments in the anti-cyclical nursing care property market remain extremely attractive and ensure that large volumes of investment capital will continue to flow into the German investment market for nursing homes. In view of a well-filled pipeline, we anticipate a new record result for the nursing care property transaction volume that will exceed the record figure to date from 2006 by a very long way,” Linsin states.

Investment transaction volume – care homes (including senior citizen residences)

Source: CBRE Research, Q2 2016

Contacts:
Dirk Richolt
CBRE GmbH
Head of Real Estate Finance
+49 (0)69 17 00 77 628
dirk.richolt@cbre.com

Dr. Jan Linsin
CBRE GmbH
Head of Research Germany
+49 (0)69 17 00 77 663
jan.linsin@cbre.com