No let-up in dynamics in the investment market for nursing care real estate
Transaction volume in the first quarter of 2016 on a record trajectory
More than half of the entire investment volume in 2015 already transacted
Growing investor interest pushes prime yield up to currently six percent
Investment volume of one billion euros possible by year-end 2016
Alternative investments are becoming increasingly important in the real estate investment business. The emerging trend ascertained in the CBRE Investor Intentions Survey 2016, both at a European and at a global level, has now been affirmed by a current analysis of the commercial real estate services company CBRE. In the first three months of the current year, the transaction volume in the investment market for nursing care homes in Germany advanced to €465 million, signifying that it has reached a level that is already more than half of the investment volume achieved in the full-year 2015. In a quarter-on-quarter comparison, the investment volume has therefore increased sevenfold. “
The high transaction volume reflects the huge interest in German nursing care properties that cannot be fully covered due to the supply shortfall.
Great interest of European investors
Asset managers proved to be the largest investor group with just under 33 percent, followed by institutional investors such as insurance companies with more than 32 percent. Open-ended real estate and special funds were the third largest investor group with 19 percent. In the first quarter of 2016, around one half of the investment capital came from Germany. Investors from other countries in Europe channelled funds of around €225 million into German nursing homes, thus contributing more than 48 percent of the entire investment volume in the investment market for nursing care properties. Players from Belgium, who invested approximately €165 million, were particularly active, accounting for 35 percent of the overall investment volume. In comparison with the prior-year period, foreign investors thus raised the capital allocated to German nursing care real estate again by almost 7 percentage points.
We see a huge interest in German social and health care properties, especially with European investors. This is particularly valid for investors who have seen this form of investment become an established asset class in the billion range in their own domestic markets.
There is potential in Germany and a certain amount of pent-up demand in the market for nursing care properties. The wider scope of some local state government directives and the necessary conversion of existing establishments will push public sector and other non-profit operators to the limit of their financial capacity”, says Richolt. “As a result, this real estate segment is increasingly attracting the attention of the private sector that is able to step in and fill the gap. Due to the significant growth in the capital value per square metre in the residential market, building new nursing care properties often only pays off in places where rents are below eight euros a square metre. In other locations, investors are concentrating on well situated properties from the existing stock”, explains Richolt.
Investment transaction volume – care homes (including senior citizen residences)
Source: CBRE Research, Q1 2016
Yield advantage of nursing care properties holding steady
With demand for investment opportunities running at a high level, especially for Core products, alternative real estate investments are increasingly interesting to investors. Nursing care properties are particularly attractive here as they enable a high yield, not only in comparison with traditional asset classes, but also measured against other alternative real estate investments. “Due to greater interest, accompanied by a scarcity of first-rate care facilities, a marginal decline in yield has been registered for nursing care properties as well. Compared with the traditional real estate asset classes, there is a yield advantage nevertheless”, explains Linsin. In comparison with year-end 2015, the prime yield dropped by 25 basis points to around six percent in the first quarter of 2016. The prime yield for nursing care properties is therefore still 100 basis points above that of hotel properties and 150 basis points higher than of student residences. Office real estate prime yields have settled at just over four percent. “In the case of care homes, we are increasingly seeing transactions and offers for sales mandates below the six-percent mark, which does not include the sale of individual assets in the context of investors selling single rooms or beds to individuals”, adds Linsin.
“An additional argument for investors is that care properties are considered a non-cyclical growth market”, says Richolt. “As investors increasingly come to recognize this fact, the interest in nursing care properties is growing even though these are highly specialized niche products. For the full-year 2016, we anticipate that the market for nursing care real estate will remain very dynamic. In view of the portfolio transactions already planned, the investment volume may well reach the one billion euro threshold in the full-year 2016”, states Richolt.
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