As we don't tire of reporting in these pages, the demographics are all pointing to a future gaping shortage of elderly care places, with current construction of suitable care home places falling well short of rapidly increasing demand.
Now a new study representing the first detailed assessment of how wide this gap actually is has been published by real estate research group bulwiengesa on behalf of Cureus GmbH, a specialist developer of senior residences and care homes across Germany.
The study concludes that at current construction rates, there will be a projected shortage between required and availability of about 170,000 care places by 2040.
The study calculates that around 372,000 new care places will be needed by 2040 as a result of demographic developments and another 100,000 will be required to replace places in outdated facilities. At the current rate of new construction of around 16,000 care places per year, the sector will create only 304,000 new care places by 2040. In parallel, the occupancy rate of available places in fully inpatient care has already reached 92.3% today and so offers virtually no buffer.
On top of that, Germany’s existing stock of care home properties is aging rapidly. After years of neglected modernisations and a lack of new construction, there has been a shift in the age categories of care home real estate, with a majority of care homes in Germany now 21 to 30 years old. The second biggest category is that of care homes that are more than 40 years old, with 29.0% of the 15,400 care homes in Germany having been built more than 40 years ago.
Excess demand is building up in the assisted living segment. At the last estimate, there are around 360,000 assisted living units in Germany. Correspondingly, the provision of assisted living units would have to increase to around 760,000 by 2040 in order to satisfy projected levels of demand and provide sufficiently differentiated capacities. The supply of outpatient day care places would also need to increase from 82,000 in 2019 to 114,000 by 2040.
Dr. Heike Piasecki, specialist for the care home real estate market at bulwiengesa, says: “The construction of new care places cannot hope to keep pace with growing demand if the market maintains its current construction volumes and pace. Moreover, the increasing fragmentation of the market, combined with the different legal requirements across Germany, are making it difficult to accelerate the pace of new construction.”
Gerald Klinck, CFO at Cureus, said: “The future of care is, rightly, the subject of heated debate. However, current discussions only ever seem to focus on demographics and the shortage of carers – the availability of care places has been almost entirely ignored to date. This is largely because the care home real estate market has suffered from a massive lack of transparency. With this study, we want to increase market transparency and draw attention to the fact that the supply gap is not only the result of a substantial shortage of carers and a sharp increase in the number of people in need of care. No, the problem starts with the lack of care homes and a shortfall in new construction.”
The comprehensive study (available at: www.cureus.de/en/market-survey) also looks at the market’s major developers and portfolio owners in more detail. The researchers used data from the Pflegemarkt.com Bauradar to arrive at an overall assessment of the care home real estate market. Based on these data, bulwiengesa reports care homes with around 35,500 places either in planning or under construction for the period from November 2017 to March 2021.
Cureus itself was the most active developer of new care places, accounting for more than 7,000 care places and a market share of around 20.0% per cent over the period.
The study also analyses twelve of the German care home market’s major institutional portfolio owners. The portfolio holder market is led by Immac Holding with 10,218 inpatient care places and Deutsche Wohnen SE with 9,270 places. However, a more detailed analysis of the owners and fund companies reveals substantial variations in the care capacities held.
Cureus currently owns a portfolio of around 3,900 inpatient care places and 237 assisted living units, across 40 leased properties. But Cureus COO Christian Möhrke predicted that, “With our current portfolio of more than 7,000 care places under construction, we are on track to expand our portfolio to around 11,000 care places by 2025, not including assisted living and outpatient day care. This should make us one of the largest portfolio holders in the German market.”
Separately, figures released by broker Savills show that Europe's senior living and care sector saw record investment volumes in the first half of this year, with deal volume approaching €4bn. This was 38% above the five-year, first-half average, Savills said. Last year's total deal volume was €7.5bn, despite the pandemic, just 4% down on 2019 levels.
The UK and Germany accounted for 54% of all deals in the past 12 months but buyers are also looking further afield, Savills said. Sweden, Italy and Spain are all fast becoming destinations for capital allocated to the sector. Each of these markets is taking an increased share of the overall deal volume compared to their five-year averages. The increase is also driven in part by operating platforms looking for pan-European growth but requiring a capital partner.
Of the total deal volume, care homes have accounted for 76% of senior housing investments in the past five years, with volumes fuelled by M&A activity and large portfolio deals. Senior living is more of an emerging sector, often developed through forward-funding deals and joint venture partnerships.
“Investors can see the chronic supply and demand imbalance and the potential for long-term secured rental income streams that these assets provide,” Savills said.
And Marcus Roberts, Savills' head of Europe, says he sees demand only increasing over the coming years, with the over 80's accounting for 11% of the population by 2050 (currently it is 6%). “The timing of this generational shift is uneven across Europe. The countries likely to be affected first are Italy, Germany and Portugal, but all European countries will eventually see the impact of this trend, leading to increased demand for senior living and care homes.”
