Healthcare property transactions up as foreign investors target UK

The UK healthcare property market investment volumes in 2021 were 53% higher than the five-year average, totalling £2.34 billion, property advisor Knight Frank says adding that there is strong interest from overseas and private investors.

There is a hike in overseas capital over the past five years, accounting for 51% of all healthcare property transactions, followed by REITS and private property companies each accounting for 19% and 18%.

Investors are attracted by the underlying demographic shift resulting in higher demand, opportunities for development, long-term secure income and more stable higher returns than in many core property sectors with healthcare offering an average annualised return of 9.5%, according to Knight Frank’s latest Healthcare Capital Markets report.

With portfolio deals accounting for over two-thirds of transactions in 2021, the year ahead is set to see an active transactional market with transactions totalling approximately £115 million by mid-February including PGIM’s acquisition of six care homes for circa £70 million and Allegra Care’s acquisition of two homes with a combined 133 beds.

A global-wide poll of investors – institutional, REIT, private property companies and overseas investors – with approximately £50 billion in healthcare revealed that they have over £6 billion in capital available and committed to deploying into healthcare strategies.

Adult care and elderly care assets are the investments with the most potential, according to the report.

Knight Frank expects the investment momentum into the sector to continue as overseas capital and REITs remain active in searching for assets to balance a diversified portfolio along with institutional investors chasing social impact.

Julian Evans, head of healthcare at Knight Frank, commented: “We are seeing great growth potential for the UK healthcare property investment market, with the demand for best-in-class properties only set to increase as the population continues to age. As is typical across most sectors now, the properties with viable ESG credentials will be the ones which are most appealing to investors and sustainable in terms of the returns they can deliver.”

The sector is still facing the challenges of inflation and supply-chain issues, however. Evans added: “There are several headwinds around inflationary costs and supply chain issues in addition to staffing shortages and the industry is watching closely at how much support the imminent social care levy will provide. Development remains essential to meeting future demand levels and currently, quality stock availability is a significant barrier to this, so it is through further development that astute investors can enter the market and capitalise on the sector.”

Date published: April 27, 2022

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