Demand for healthcare real estate will continue to rise after the Covid-19 pandemic, according to a report by real estate adviser CBRE.
The CBRE UK Healthcare Sentiment Survey, which surveyed investors, developers, operators and lenders with a combined investment of nearly £24 billion, states that the “overwhelming majority of investors have either maintained or increased their investment allocations since the Covid-19 outbreak, with 16 per cent stating that they have increased their allocation to healthcare real estate by more than 25 per cent”.
The report says investor demand has been resilient throughout the pandemic and although investment activity has slowed, pricing has generally been stable.
It also indicates that 88 per cent of respondents expect demand to continue to rise, which they would expect to drive an increase in pricing. Currently, elderly care and retirement living are the sectors seeing the most interest from healthcare investors.
Tom Morgan, head of healthcare, said: “The healthcare sector has become a key area of focus for investors. At a time of wider-market uncertainty, the sector’s needs-based demand characteristics, underpinned by a compelling demographic story in the UK, have grown in appeal as evidenced by the acquisition of Priory Group for over £1 billion at the end of 2020 in which CBRE advised Medical Properties Trust, the funding partner to Waterland Private Equity.”
The survey results show that Covid-19 has shaped the investment decisions of “a significant proportion of respondents”, with around 40 per cent of respondents mitigating reputational risk by adjusting their criteria for higher quality stock and strong management that supports infection control.
Morgan added: “It is becoming increasingly clear that the main weight of capital is focusing more heavily on quality. This applies to both the physical asset and the quality of the operation and its management. We therefore expect fit-for-purpose, well-operated healthcare assets with solid demand fundamentals to benefit from this shift in investor demand.”
Of those surveyed, 60 per cent of respondents state that Covid-19 has not impacted their development strategy. Of the 40 per cent that have been impacted, 33 per cent predicted an increase in activity and 67 per cent predicted a fall. Those that did note a likely slowdown attributed this to delayed decision-making and a decrease in operator engagement.
The survey indicates that developers are clearly focusing on elderly care and retirement living where demand is underpinned by the UK’s ageing population.
Developers have focused on the more affluent towns for the high private pay fees that are achievable which broadly mirrors where investors predict the most investment demand. However, more developers are now targeting towns and areas where there is less competition and with fee levels that support the cost of developing. The Midlands, North West and East Anglia are predicted to experience growth in demand where there are pockets of affluence.
Andrew Surgenor, senior director, valuation and advisory services, said: “The focus for developers appears to be shifting to the regions where there may be less affluence overall but, more importantly, there is limited provision of high-quality facilities resulting in pockets of unmet demand.”
The healthcare sector has seen relatively high levels of transactions compared with the traditional core real estate markets. The lenders responding to this survey have loan books of approximately £7.75 billion in the healthcare sector.
As a result of the healthcare sector being needs-driven rather than choice-driven, consumer demand has been robust throughout the pandemic. As such, there is a higher sense of security among lenders when dealing with healthcare asset classes and 72 per cent of respondents are interested in increasing their level of exposure.
A variety of investors, including specialist healthcare REITs, private equity funds and institutional investors, participated in the healthcare market sentiment survey. Combined, these investors have deployed over £16 billion into UK healthcare real estate. Over 40 per cent of respondents have invested over £500 million into healthcare property.
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