Resilient investment flow

European care home investment volume reached approximately €3.6bn during the first three quarters of 2020. This is 8.1% down compared to the same period last year. Yet still a robust result in the light of the Covid-19 pandemic. Investment activity has been particularly resilient in Sweden and Germany where volume transacted during the first nine months of the year increased by 80% and 21% respectively, compared to Q1-Q3 2019. Germany remained the major care home investment destination accounting for 42% of the total volume followed by Sweden (23%). Belgium, Finland and the Netherlands also remain strategic care home markets targeted by investors.

In contrast with last year when a few very large portfolios boosted the European volume, investment activity in H1 was fuelled by several small to mid-size portfolio transactions mainly signed in Germany and Sweden and a large number of single property deals. The share of forward-acquisitions in new care home developments also accounted for nearly 30% of the overall volume.

Public specialised REITs, which have been pioneers in the market, are still the most dynamic market players, notably Aedifica and Cofinimmo. Nevertheless, a growing range of investors is now involved in the sector, including investment managers (Primonial, Patrizia, Threestones Capital, Capital Bay) and listed property companies (SBB i Norden).

Cross border investment, which accounted for approximately 40% over the past five years, predominantly originates from within the continent. In recent years, US and Asian investors demonstrated a rising interest for the sector; however, strong market knowledge and knowhow from European investors provide them with a solid grip on their markets.

Despite the current health crisis, the sector remains very attractive for investors seeking secure, long-term income streams as the sector is backed by solid long-term fundamentals. Last month, SBB bought a large care home property portfolio in Finland from eQ for €222 million, the largest care home investment transaction in the country. Based on the deals transacted since the beginning of October and others in the pipeline for the rest of the year, we expect the end-year volume to slightly exceed €5bn, in line with 2019. As the overall investment activity will eventually resume sometime next year, we could witness surprisingly high care home investment volume in 2021. According to the Emerging trends in Europe 2020 survey, retirement/assisted living is the sector offering the best prospects for investment and the second-best prospects for development.

Hardening yields

Increased appetite from investors for care homes has put downward pressure on yields over the past two years. Notably in Sweden, Germany and Finland where prime yields hardened by 30, 20 and 10 basis points respectively. The prime care home yield currently ranges between 3.85% and 5% depending on country, location and quality of assets. We expect growing competition for care home assets will continue to put upward pressure on prices.

_{Read the articles within Spotlight: European Care Homes below.}