• Investment volume of €2.4 billion in nine months: large-scale portfolio acquisitions dominate the German nursing home property market

• International investors determine investment activity

• Prime yield for first-rate nursing homes drops to 5.75% – premium for portfolios

Thanks to two mega deals, the investment volume on the German market for nursing home property reached a new record figure of around €2.4 billion in the first three quarters of 2016, which is double the highest amount achieved in 2006 when take-up stood at €1.2 billion. The result corresponds to five times the investment volume over the same period in 2015. This is the conclusion drawn in a current analysis prepared by commercial real estate services company CBRE.

Large-scale deals dominate the market
The portfolio share came in at 87% in the first three quarters of 2016, compared with 55% in the year-earlier period. The investment year 2016 was dominated above all by two large-scale transactions: After an already very strong first half year, which saw investments of a good €900 million in German nursing care homes, Primonial REIM from France acquired a nursing home portfolio comprising 68 nursing homes from Even Capital for just under €1 billion. Deutsche Wohnen took over the Pegasus portfolio comprising 28 nursing homes from Berlinovo Immobilien Gesellschaft mbH for €420.5 million. The Pegasus portfolio was sold as part of a structured bidding process in which CBRE advised the seller.

All in all, the share of the nursing home and senior citizen residence asset class in the overall investment volume of the commercial real estate market exceeded 7%. Up until now, a figure of below 2% had been achieved for the niche segment of nursing home properties.

International investors committed funds of almost €1.4 billion, thus contributing 56% of take-up. The entry of Primonial REIM brought the share of French investors to 41%, ahead of investors from Belgium, with around 10%.

Open-ended special real estate funds as well as listed property companies and REITs were the most active buyer groups in the first three quarters, accounting for 50% and 22% of the investment volume in this asset class respectively.

Yield advantage over traditional real estate investment classes attracts growing investor interest
In comparison with the traditional real estate asset classes, prime yields for state-of-the-art nursing care homes, currently at 5.75%, are a good 200 basis points higher measured against prime assets in the office and retail segments in the investment locations. Compared with the hotel asset class, the yield differential stands at 100 basis points at present.

Investors are increasingly attracted to alternative investment opportunities in their property allocation, with the focus shifting to managed properties as well, as shown by the very high transaction volume in these segments. Above all, institutional investors, such as insurance companies and pension funds, are turning increasingly to the asset class of social and healthcare property as, in comparison with conventional Core commercial property, such as office or commercial buildings, this is how they can generate higher risk-adjusted returns. In addition, the healthcare market has received significantly better ratings than in the past, ultimately due to the maturing of the operator market as a consequence of the process of ongoing consolidation.

Demographic change secures the market
“The German healthcare market is a growth market. Against the backdrop of declining population figures, a drastic shift in the age structure is taking place, which poses the question as to how we will live at advanced age. Especially as, by 2030, the number of people requiring nursing care in our society is set to grow by a good one million,” Linsin says. He adds that “there is currently a dearth of state-of-the-art nursing homes which comply with legal requirements. Consequently, the interest of institutional property investors to commit long term to the German healthcare market is on the rise. This highlights the great interest of domestic and increasingly international investors in the market for nursing home properties, with the latter currently being the more active buyer group.”

“Demand for healthcare properties remains high, and there are considerably more specialized investors today who will invest long term in the German market,” Richolt comments.

Forecast: investment of €3 billion possible through to year-end
“We anticipate several more major deals in the market for healthcare properties before the end of the year so that, from today’s standpoint, a transaction volume of a good €3 billion is entirely possible in 2016,” Linsin states.

“The pressure on holders of nursing home portfolios to sell is low, and most operators are more interested in buying back assets instead of entering into new sale-leasebacks. Accordingly, we believe that there will be no quick repeat of the record result in the 2016 investment volume,” Richolt says.

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

Source: CBRE Research, Q3 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