Text: Matti Schenk

In this chapter we will now look at the liquidity of the market for care properties. The total volume of 201 billion euros on the investment market compares with an annual transaction volume of 2.1 billion euros on average over the past five years. Around two-thirds of the transaction volume was realised through the purchase of portfolios. Transaction volumes have risen noticeably in recent years, which is due to the significant increase in demand and a progressive institutionalisation of the market.

Liquidity is slightly below average
Looking at the last five years, between one percent and a maximum of 1.5 percent of the market volume was traded per year. This value is slightly below the level of the entire real estate market for non-residential properties in Germany. Based on the data of the land valuation boards, excluding share deals, around 2.3 percent of the net fixed assets of non-residential real estate were traded in 2020.

However, we assume that there is a significant number of unreported transactions in the care property sector. This is due to the small-scale nature of the market in terms of the operator and ownership structure with often regional or even local players. Even though detailed data on ownership is lacking, we assume a high share of owner-occupied properties. Given the dominance of non-profit and municipal operators, many properties are likely to be in the hands of smaller and medium-sized operators or non-profit organisations. We also assume a higher proportion of private individuals as owners. Another explanation for the limited transparency is that residents, relatives or other local stakeholders sometimes have reservations about selling care properties to real estate investors. Some players therefore do not make their transactions public. Nevertheless, the transactions we record reflect at least the institutional part of the investment market.

Recently almost 100 transactions per year
In the past five years we have registered an average of 81 individual and portfolio transactions in care properties per year. By way of comparison, there were a total of around 12,270 commercial and residential property transactions during this period. This means that transactions of care properties represent 3.3 percent of the total transaction activity. Contrary to the trend of the market as a whole, the number of purchases of care properties also increased after 2016 and reached its peak so far in 2019 with 95 transactions. In total, around 870 care properties were traded in the transactions of the last five years. Around 62 percent of the traded care properties changed hands as part of portfolios.

The average transaction size over the last five years was 24.5 million euros, with strong fluctuations - depending on the number of larger portfolio transactions. In 2021, transactions weighed in at an average of 31.6 million euros. Despite stronger fluctuations over the course of the last ten years, we observe a clear growth in average lot sizes on the investment market. This is primarily due to the rising capital values, which are also reflected in the steadily increasing average volume of traded properties. In 2021, the average volume per traded care property was 13.4 million euros.

Number of investors on the rise for years
The rising capital values in recent years also result from an ever-increasing number of active investors and consequently very intensive bidding processes. In each of the years 2019 to 2021, around 36 investors known by name came forward as buyers. During this period, approximately every second investor recorded in the respective year appeared as a buyer of German care properties for the first time. Many of these first-time buyers have only been involved in a few transactions. Since many of them want to build up a larger portfolio, we assume that they will remain active on the market in the longer term.

In total, around 80 investors known by name have purchased German care properties within the last three years. Five years ago, this number was 44 percent lower. In addition to the buyers active in the recent past, there are all those investors who have only recently decided to enter the market and have not yet started building up their portfolios. The investor universe in the market for care properties is thus likely to be larger than ever before. Nevertheless, only a few buyers account for a large part of the transaction volume. In the last five years, the top 5 buyers in a given year accounted for between 50 and 70 percent of the total volume. In terms of purchase volume, these are the five largest buyers of the last two years: Vonovia (due to the acquisition of Deutsche Wohnen including its care home portfolio), INP Holding, Swiss Life, Aedifica and Cofinimmo. In total, they were responsible for 47 percent of the transaction volume in the last two years. Despite the increasing number of players, the market thus remains highly concentrated in terms of volume shares.

Our conclusion
Measured in terms of the number of transactions and the transaction volume as well as in terms of the number of active investors, the market for care properties is a niche in the German real estate investment market. Even though liquidity is still below average, the investment market for care properties has experienced a noticeable upswing in recent years. In particular, the transaction volume has developed considerably more dynamically over the course of the last ten years than on the market as a whole. The number of transactions and active buyers have also increased at an above-average rate and recently remained relatively stable, contrary to the trend on the market as a whole.

Despite the above-average growth of the market, it is likely to be more difficult for investors to place large sums of capital than for other types of use. In view of the low property volumes, the lot sizes on the investment market are also predominantly low. In conjunction with the significantly increased field of bidders, competition for the few available products has intensified in recent years. This is particularly the case for portfolios or for the quite rare large-volume individual properties. In this competitive environment, investors who can also handle smaller transaction volumes have an advantage. It is also advantageous to enter into a cooperation with an operator or to found or buy one's own operator. In this way, properties with expiring leases or project developments at a very early planning stage can be acquired. For properties without long-term leases, the field of bidders is usually much smaller. Joint ventures and cooperations with project developers have also been increasingly observed in recent years. This makes it possible to secure a project pipeline at an early stage. However, in view of the massive increase in construction costs, early forward deals are currently linked with greater risks.