Text: Matti Schenk

The investment market for care properties has become much more dynamic in recent years. However, more and more investors and a larger amount of investment capital are facing below-average liquidity and thus a lack of available products. It is particularly critical that many properties are de facto not available for institutional investment due to the quality of the property as well as a prospective non-compliance with the legal framework. This creates a product shortage on the market despite the large number of potential investment properties. However, product availability could improve in the next few years, although increasing economic pressure on operators and owners will also contribute to this. In principle, the pressure to modernise existing buildings is likely to increase in the coming years. This is because the German climate goals in the building sector can only be achieved through a higher renovation rate in the existing stock. The sharing of CO2 costs between owners and occupants depending on the building standard is likely to be only the first step in stronger regulation. In addition, there are likely to be higher single-room occupancy rates in some federal states. To meet all these requirements, a lot of capital is needed for existing care properties. Some landlords do not have the necessary capital or are unwilling to make these investments, so selling to other investors is likely to be an option. In addition, significantly more care properties are needed in Germany to meet the growing demand for care. A lot of capital will therefore also be needed in the new construction segment in the coming years. It is already becoming apparent that these mammoth tasks cannot be accomplished without private investors. The high investment demand should thus lead to investment opportunities and a larger supply for investors. Overall, there is much to be said for long-term structural growth in the investment market for care properties. The fact that the majority of the market volume is to be found in growth regions should suit the investment preferences of many investors. In order to address a broad spectrum of institutional investors, however, the current deficits in the area of ESG and sustainability must be remedied quickly.

While the need for investment is growing overall, rising costs are leading to higher risks for project developers and care home operators. The massive increase in construction costs is likely to reduce new construction activity and thus counteract the actually foreseeable expansion of supply, at least temporarily. Meanwhile, increasing economic difficulties of many care home operators are leading to a further thinning out of suitable supply for risk-averse investors. Instead, the current market environment offers a variety of opportunities for investors with a higher risk appetite. For such investors, it can make sense to build up or take over their own operator competencies or to enter into long-term cooperation with a cost-efficient operator with a strong credit rating.

In contrast to care homes, rents in assisted living facilities can be adjusted to market levels much more easily. For risk-averse investors who find it difficult to find suitable products in care homes, assisted living facilities can be worthwhile.
 
The economic difficulties of many operators must be a cause for concern in view of the ever-increasing need for care. Sooner or later, we believe that politics must react to this dilemma and provide additional funds for the operation of care properties. This could attract additional capital from real estate investors and make the market attractive for new players. It remains to be seen when such extensive and very cost-intensive reforms will come about.