REFIRE and Targa Communications Roundtable Report: Healthcare and Senior Living
The number of registrants for the latest online Roundtable Discussion on 21st April from REFIRE and Targa Communications – at over 400 – was testament to the level of interest in the asset class Healthcare and Senior Living. Moderated by Charles Kingston of REFIRE and Andrew Barber of Targa Communications, the discussion proved highly informative, and there were no shortage of questions and impulses from the very engaged audience. Still, a time limit had been set and was (more or less) adhered to.
While the overall investment category of Healthcare encompasses a wide range of subsectors, from doctors’ houses to medical centres to ambulant care homes to nursing homes, it is beyond the scope of a one-hour-plus discussion to do all the individual sub-sectors justice. Our panelists focused mainly on German healthcare and how investors can access the sector through funds, and the increasingly visible segment of Senior Living.
Julia Momotiuk of Bonard opened up the discussion with a presentation showing how in Germany the availability of cheaper land and unmet demand was leading to the development of senior residences outside the largest cities. The share of senior aged 60+ in Germany is set to increase from 28% in 2019 to 31% in 2025. Demand coverage is highest in Bonn at 7.7%, with Nürnberg at 6.9% and Stuttgart at 6.8%. The Bonard research identifies growing demand for privately-owned residences propelled by high levels of income among many seniors.
Dr. Michael Held, CEO of Terragon AG, market leader in senior serviced living and one of the most experience developers in the sector, engaged his fellow panelists with vigour. Terragon is developing a strong platform for the healthy but ageing sector of the population that wants to live independently, with access to services. He sees a shortage of product in the segment he serves, and is calling for more developers to enter the market. However, there are too many investors crowding into the market, with overpriced products and overestimates of likely returns. While COVID-19 will not have a significant impact on the design on serviced living, tele-medicine certainly will.
Berthold Becker, head of Germany at TSC Real Estate, agreed that from an early stage in the COVID pandemic, investors were shifting much of their investment capital into the healthcare sector, drawn by its resilience, independence of economic cycles, and falling attractiveness in other areas. Even with declining yields, the asset class remains attractive. The rising interest from foreign investors were pushing up prices too fast. Germany has several advantages for investors, not least the number of regional centres that have unexploited potential, and that the market for serviced living in Germany is still in its relative infancy.
There is also plenty of potential in out-patient and rehab, but also in assisted living and in-patient nursing homes. Dementia illness and the availability of suitable staff mean that data-based project development is increasingly critical for investment decisions.
Paul Muno of Principal Real Estate Europe and another veteran of the sector, highlighted how even against the background of the pandemic, the healthcare sector is showing robust growth, with much less cash-flow volatility than in other sectors. This helps bolster its role as a risk-reducer in institutional portfolios.
The market is shifting, with final stay durations much shorter than before, at about 6-18 months. Nursing homes are more resembling hospices now. The typical 100-bed nursing home size, as stipulated by German federal states regulations, makes the investment size too small for many investors. However, the influence of the church and regional charitable institutions is waning due to lack of available funds to handle the growing demographic demands, hence there are new opportunities for international investors.
Muno agreed with Berthold Becker and Dr. Michael Held that the EU taxonomy on ESG investing will play a bigger role in the development of Senior Living than COVID-19, while ecological aspects will play a bigger role in the function and design of buildings.
Samuel Vetrak, the CEO of research group Bonard, which has produced a major study on the Senior Living sector in Germany, highlighted how the provision rate of about 1% in the serviced living sector is extremely low, and agreed with Dr. Held about how much more potential there is in the German market. With more supply, yields should also rise. The real opportunity is in development, which is what Dr. Held’s Terragon does.
Vetrak underlined Muno’s point that the average size of an individual investment is usually too small for a pension fund. In contrast to the USA, for example, most Europeans are not retiring to sunshine regions, but rather prefer to stay close to family and relatives. Municipalities will have to provide land at affordable prices to encourage developers and ultimately, consumers, who will choose an affordable form of serviced age-appropriate living.
All in all, a very lively and stimulating discussion from a highly experienced panel, on a subject which is clearly of major interest to experienced, and – increasingly – new investors.