Investment volumes into the UK healthcare market remain buoyant as the sector continues to be regarded as resilient and stable.
Last year investment volumes into the overall healthcare market saw a 3.6 per cent year-on-year increase, which, when considering the record year of 2017, reinforces the growing strength of the industry. In particular, the elderly/long-term sector experienced a standout year, driven by a number of sizeable portfolio deals, with volumes surpassing levels seen in 2017 by 58 per cent and setting a new record at £1.2 billion.
The perceived stability of the market can be attributed to a number of factors, but it’s predominantly the long lease lengths, indexed rent reviews and a range of underlying income sources that can help explain the increased popularity amongst investors. In addition to these fundamentals, there are also notable market drivers having a significant impact.
The aging population is continuing to place increased demand on healthcare services and specialist accommodation, and with this looking set to continue, there is every reason to believe that healthcare’s popularity with investors will increase. Within Primary Care, the rent reimbursement provided to GPs by the NHS means that rental incomes are considered to very secure, again contributing to investor demand.
However, in contrast to the continued strong investment activity, a lack of available stock is becoming a restricting factor. Smaller operators are increasingly looking to assemble high quality portfolios, and then transfer a leasehold interest to stronger covenants before selling the freehold investment, as a way to see enhanced capital values upon exit.
This could become a catalyst to delivering sought after stock for investors, although, in the meantime, it can be expected that the shortage of high quality stock will maintain strong pricing and further yield compression.
Looking ahead, it is the retirement/senior housing market that is set to gain more momentum and is the sector to watch – particularly as the development of a Senior Private Rented Sector model starts to take shape. It is expected that investors eager to find a foothold in this market will look to how the traditional private rental sector and student housing sectors have evolved, demonstrating that getting in as early as possible can prove fruitful.
With no such product to speak of available to investors yet, JVs, development funding and operators aligning will undoubtedly be the areas to watch this year.
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