Shortage of assets leads to big fall on German healthcare market

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Transaction volume on the healthcare property market in Germany at €840m is down by a significant 52% over the first six months of the year, compared to last year, according to figures released by broker CBRE.

The lack of major transactions is the main reason for the decline, suggested the CBRE research team, with the share of portfolio deals falling by 51 percentage points to 27%. According to Dirk Richolt, head of real estate finance at CBRE Deutschland, “While many investors are looking to buy healthcare properties, the market is suffering from a shortage of product. Looking at the statistics of the last few years, we can see that transaction volume was largely driven by large volume portfolio deals.” These have failed to materialize this year – hence the fall.

However, he sees a certain momentum beyond large portfolio sales. In those years without major sales, he says, this year’s current transaction volume would have made up the volume for the full year. The lack of portfolio deals is noticeable in the share of deals done by international investors, which has fallen 31 percentage points to 53%. International investors tend to be more interested in big portfolio deals.

Prime yields for nursing homes remained unchanged compared with Q1 at 4.75%. “The asset class is therefore holding on to the superior yield it still has compared to office properties, for example, which are generating yields of under 3% in Munich. But we do expect further yield compression over the course of the year”, said Tim Schulte, of CBRE Valuation Advisory Services.

Despite high demand, especially from foreign buyers, no outstanding major deals are anticipated in the second half. CBRE expects a total transaction volume in the sector of €1.25bn to €1.5bn for the year.

One company that has been investing heavily in the sector is Belgian healthcare REIT Aedifica, which has recently signed a further €20m of deals bringing its three month total up to €194m.

Aedifica bought a healthcare site in Wurzen, Saxony, for €7m and completed a care campus in Schwerin for €12m. The Wurzen site will contain 73 units and generates an initial gross rental yield fo 5.5%. The property will be operated by Seniorenhaus Lessingstrasse ofn a 25-year double net lease. The Schwerin campus with 87 units represents an initial gross rental yield of 5.5%. The operator is Emvia Living on a 30-year double net lease including a triple net warranty for maintenance.

The Brussels-based Aedifica completed a €418m capital increase in May, apparently the largest ever capital increase in the Belgian regulated property sector. Since then the company has been on a veritable spending spree, and says that several other investments were being currently reviewed.