Care-home provision in Europe is falling despite the fact that demand is increasing greatly, delegates heard at the recent Senior Housing and Healthcare Summit, organised by SHHA and EPRA.
“At the moment, there’s an inability to meet the needs of people, as the availability of care-home beds is falling in many countries,” said Richard Valentine-Selsey, head of European living research and consultancy at Savills.
“However, more investors are willing to deploy capital in the sector. Being realistic, we’ll have to wait, but next year we should see a real turnaround.”
The number of beds in residential long-term care has increased in the Netherlands, Sweden and Germany, but it has declined in France, Austria, Ireland and the UK. Denmark, Italy and Poland have experienced the sharpest, two-digit falls.
Europe’s population is ageing fast. The percentage of the population over 65 years of age varies from a low of 12% in the Netherlands and 15% in Ireland to 22% in Portugal and Germany and a high of 23% in Italy. Demand for care homes will grow rapidly as the number of over-65s is set to rise in all countries over the next two decades.
Market fragmentation
The fragmentation of the market is an obstacle to provision, Valentine-Selsey said, with very little concentration of ownership in most countries. The UK is in a unique position, with over 80% of the market in private hands. Germany hovers around the 40% mark, while the Netherlands, Spain, Italy and France are around 20% or below.
The good news is that investment across senior housing and healthcare continues to increase as a percentage of all investment in the living sector and has now reached 13%. While, in the past few years, care homes attracted more capital than senior living, in Q1 2023 the investment was split evenly between the two for the first time.
The UK and Germany have been the most active markets in the past 12 months, accounting respectively for 30% and 28%, far ahead of France at 11%, Sweden, Italy and Spain at 4% and Portugal at 1%.
Across Europe, investment activity in the sector has been driven by cross-border capital, a mix of institutions, private and REITs, which has accounted for 42% of the total. The capital has come primarily from France and Belgium, but also from the US, UK, United Arab Emirates, Switzerland and Luxembourg.
“Investors are attracted by the consistent annual returns that healthcare provides,” said Valentine-Selsey. “In France, one-year returns are close to 10%, in Germany and Sweden five-year returns are over 8% and, in the UK, 10-year returns are over 7%.”
Increasing allocations
In the next three years, investors aim to increase their allocations to the broader living sector, according to a Savills survey. Most are targeting multi-family, purpose-built student accommodation and co-living, but 43% are opting for senior living. Care homes, which are seen as a more niche subsector, spark the interest of only 24% of investors.
“Those who are targeting the sector are looking to deploy a significant amount of capital,” said Valentine-Selsey. “Around 33% of investors are aiming to deploy €100-€500 million in care homes, while 11% are willing to invest between €500 million and €1 billion, with another 11% ready to deploy over €1 billion.”
Most investors are keen to pursue pan-European strategies, according to the Savills survey, but there are barriers that need to be overcome to unlock that investment.
“The biggest barriers are the pricing and return profile, access to stock and scalability, regulatory risks and operational risks, while lack of familiarity with the sector is not seen as a barrier at all,” said Valentine-Selsey.
“In the short term, there are some headwinds facing the sector, but the long-term fundamentals remain strong,” he concluded.
Source: Real Asset Insight