Healthcare investment rises to £1.32bn finds Knight Frank

It was a strong year for healthcare in 2017 as investors sought defensive sectors to put their money in, according to Knight Frank. Both domestic and international investors were attracted by the long-dated income, typically comprising 30-year lease terms with either RPI-linked or fixed uplifts.

The UK healthcare sector saw documented investment transactions reach £1.32bn in 2017, an increase of 88% when compared with the 10-year average.

The property consultants said the care home sector remained an attractive target for investors, compared to other commercial properties which have an average lease-length of seven years. Its institutional appeal is broadened by low yield conditions in both the bond markets and broader commercial property markets.

Knight Frank found that in 2017, the market share of specialist property reached a record 28% of all UK commercial property investments, with healthcare investments making up 8% of all specialist property transactions in 2017, which elevates this sector firmly into the mainstream.

Around 64% of investments last year were from REITs and quoted UK property companies, followed by 12% from UK institutions and another 12% from private UK property companies, mainly focussing on smaller care home groups.

Overseas investors accounted for just 2% of deals, as activity from US REITs has quietened down due to a scarcity of scalable mainstream platforms and US-focussed issues, which has diverted their attention to other specialist sectors.

Furthermore, prime healthcare yields have compressed further for elderly care homes to 4% driven by the current supply shortage in the market. Knight Frank predicts this will inevitably increase investor appetite, supporting further new entrants into the market and subsequently drive up prices to maintain the downward pressure on yields.

Head of healthcare and hotels, Julian Evans, said: ‘The healthcare sector is one that is least affected by Brexit volatility, as demand for healthcare services is typically driven by domestic factors. Just weeks into 2018, healthcare transaction volumes have already reached £75m and Octopus Healthcare has completed a fund raise of £85m to focus exclusively on the UK care home market.

‘There will be further investment from infrastructure funds and the emergence of new UK REITs and Asia Pacific funds. There is circa £3.5 billion of UK private equity and circa £20 billion of overseas private equity looking to enter the UK care home market.

‘Attracted by the UK’s ageing population, an under provision of care home beds, the attractiveness of long-dated income and a weakened sterling, overseas investors will re-enter the buoyed market in the coming year. Furthermore, pension funds and institutions are increasingly diversifying portfolios into the healthcare sector, as they remain under pressure to match their liabilities against long-dated income.’