Will the healthcare sector prove to be a safe haven for investors?

While it’s too early to say how the German healthcare property investment market will fare in the second and subsequent quarters of this year, we do now have figures for the first quarter. According to property advisors CBRE, a total of €399m was invested in the market in the first three months, about 7% below last year’s corresponding figure of €430m.

According to Dirk Richolt, head of healthcare real estate at CBRE Germany, “A look at the investment volume in recent quarters shows that this year’s result nevertheless remains at a high level. “We expect the significance of the healthcare sector – and therefore also budgetary policies – will strengthen healthcare properties and their sustainable cash flows.”

Even with the ongoing pandemic, Richolt says that in market phases with recessionary tendencies investors are especially on the lookout for properties let long term with a low correlation to the economy. Healthcare properties with their low capital values, long-term rental agreements and high occupancy levels are still considered to be a safe haven in more turbulent times. Still, not surprisingly, Richolt’s colleague Dr. Jan Linsin, head of research at CBRE Germany, said that in the light of COVID-19, “Given the current situation, we are unable to provide any robust and reliable forecasts for the investment volume at year-end 2020.”

The deals in the first quarter were dominated by a small number of care home transactions that impacted heavily on the figures. The Hamburg and Frankfurt-based AviaRent Invest’s takeover of a care home portfolio for €185m was indicative of the 61% of the investment volume being made up by portfolio transactions, as against only 37% a year ago. Clinics (up 225% to €41 million) and facilities for assisted living (up 100% to €18 million) likewise increased their share significantly compared to last year. Medical centers achieved a volume of €44 million (down 16 percent). Medical centres, by contrast, only reached a volume of €44 million (down 16%).

Where did the investors come from? Almostt no change was registered in the proportion of international investors, which declined by a mere one percentage point (1%) to 63%. Players mainly originated in European countries outside Germany, particularly in the Benelux countries.

Given the strong demand, the prime yield for care homes has fallen back 50 bps and is currently 4.25%, edging capital values closer to those of the more established asset classes.