• Transaction volume of €840 million in the first nine months of 2023 – 62 percent less than in the year-earlier period
• Care homes and assisted living determine the market
• Care home prime yield up 1.1 percentage point to 5.1 percent in the last twelve months

The German healthcare real estate investment market generated a transaction volume of €840 million in the first three quarters of 2023, reflecting a decline of 62 percent compared with the same period last year. This development mirrors the entire real estate investment market in Germany that has shed 60 percent. The proportion of international investors was similarly in decline, down 27 percentage points to 18 percent of the transaction volume. With a share of 59 percent, open-ended real estate and special funds constituted the largest investor group, followed by asset and fund managers with 16 percent. These are the conclusions drawn in a current analysis prepared by the global commercial real estate services company CBRE.

“The shortage of skilled personnel also poses a huge problem. This issue can disrupt the economic viability of the homes, with the result that especially smaller establishments are forced to close because they fail to fulfil the requisite qualifying ratios.”

While care home prime yield still stood at 4.9 percent at the end of the second quarter of 2023, it has since seen a rise of 0.2 percentage points to 5.1 percent. Compared with the same period in 2022, this marks an increase of 1.1 percentage points.

Moreover, financing interest, measured in reference to the 5-year EURO Swap Rate for instance, currently stands at 3.4 percent and the risk-free rate in the form of the 10-year Bund at more than three percent at the last count. The benchmark yield alone has gained two percentage points in the last 18 months. Investors are pricing this yield increase into their potential real estate allocation and consequently require an adequate risk premium to mitigate the risks of investing in tangible assets.

So far this year, the largest segment of the healthcare real estate investment market has proven to be care homes with a share of 60 percent in the transaction volume. Assisted living followed on in second place with 31 percent. Rehab clinics (4.6 percent), medical centers (2.3 percent) and clinics (1.7 percent) only played a secondary role, although the interest is growing, particularly in medical centers. Available supply is relatively modest, however.

Outlook for the full year

“Although Germany’s healthcare real estate investment market should exceed the billion euro mark in 2023 as a whole, thereby roughly approximating the level of the years 2013, 2015 and 2017, matching up to the past five years, each generating two or even three billion euros, is not going to happen given the lack of large-volume portfolio transactions,” Schnell says. “Investors will proceed very selectively also during the remainder of the year, but next year will see them make a comeback with greater liquidity to focus increasingly on highly attractive investment opportunities in the area of systemically relevant healthcare properties.”