The need for mental and behavioural health facilities across the UK has been steadily increasing over recent years. Between 2020 and 2021, 53,000 people were referred to hospitals under the Mental Health Act 1983, representing a 16 per cent increase on the figure recorded between 2016 and 2017.
At present, the proportion of people under mental and behavioural health care through independent providers remains very limited, at around only 6 per cent, indicating considerable scope for increased private provision and an opportunity for the independent hospital sector to offer an alternative solution to and relieving some of the pressure on the NHS.
Similar to NHS facilities, independent mental healthcare hospitals are of variable quality, with the proportion that are rated either ‘inadequate’ or ‘requires improvement’ standing at 28 per cent, almost twice as high as in the independent hospitals sector as a whole (15 per cent), according to the Care Quality Commission.
The less mature nature of the mental and behavioural health facilities sub-sector, combined with an opportunity to expand and evolve, generates a perfect opening for specialist real estate investors looking to enter this market. We have already seen some of the dominant buyers in the mainstream hospital market recognising the potential of this segment, with MPT acquiring a portfolio of mental health and behavioural facilities from The Priory Group last year for £800 million.
It is clear that the sub-sector is poised for growth and offers a compelling opportunity for investors and operators with experience to capitalise on the lack of supply and the dearth of quality provision in the UK.
Those targeting the sector should also pay careful attention to regional differences in the current quality of provision. In Yorkshire and the Humber, 45 per cent of mental health hospitals were rated ‘inadequate’ or ‘requires improvement’ making it the lowest performing region, while in the South West, the highest performing region, the figure is just 8 per cent.
As the sub-sector gains traction, we could see it follow a similar trend to the mainstream independent hospital market where, according to our UK Private Independent Hospitals Report, average net initial yields in the UK have been steadily decreasing over the last 10 years, and now sit at 3.69 per cent, which is a record low in the sector.
The Covid-19 pandemic caused a significant increase in the backlog of patients, placing further pressure on what was already an over-stretched NHS service and resulting in many patients turning to the private hospital sector for treatment.
The increased demand for private treatment is expected to continue rising in the short-to-medium term, meaning major private hospital owners and operators will continue to be better placed than those in other real estate sectors to sustain their margins, despite rising costs.