The healthcare market has made huge strides in establishing itself as a viable and solid asset class over recent years. 

Care homes, independent hospitals and primary care properties are currently achieving a higher combination of average annual rental income returns and five-year annual capital growth compared with many of the mainstream investment markets. In fact, Savills research shows that, in this context, these three healthcare groups sit only marginally behind the ever-popular urban logistics sector and ahead of other areas such as regional logistics, retail warehouses, UK residential and central London offices.

So why is the healthcare market looking so healthy right now? One of the main reasons is the fact that it is a consumer-driven market that is often used through need rather than choice. Furthermore, with an ageing population that is predicted to see the number of people aged over 85 triple by 2055, the sector has unquestionable drivers for increasing demand as the need for primary, acute and social care increases.

From an investors’ point of view, the fact that healthcare offers a strong combination of secure income streams from a variety of areas including the NHS, local authority and self-funded markets makes it very appealing. This, combined with an increase in private self-funding markets seen particularly within the care home sector, has given investors confidence that these markets are viable and offer sustained growth potential. 

The increasing prominence of the sector has been underlined by downward yield compression, especially in the prime care home sector, which have seen yields move in by 100 basis points in the last 12 months to 4 per cent. This is mainly a result of income security and a lack of product in the market. While it is unlikely we will see pricing movement on similar levels this year, we do expect some continued compression in comparison with the mainstream commercial markets with prime yields set to harden to sub 4 per cent.

All of the above factors combined have seen healthcare, which has traditionally been categorised as an ‘alternative’ investment class, align itself more with the mainstream market and the rise in returns and capital growth are a reflection of the long-term secure income, consumer demand and Government-backed income in the sector.

Further information

Contact Savills Healthcare