Healthcare sector: UK versus Continental Europe
This is a reflection of the maturity of the market – the earliest dedicated UK healthcare property funds were established in the early 1990s – and of the willingness of both the public and private sector to engage with real estate capital, CBRE argues.
By comparison, CBRE says it is debatable how many European healthcare property markets really match up to the UK in respect of liquidity, investable stock and quality of tenant credit.
Edward O’Brien, Senior Director, at CBRE European Healthcare, explains:
“By any measure, the UK’s healthcare real estate market is the most substantial and mature outside of the USA. Across Europe, property investment has hitherto been restricted to pockets of the healthcare market, most commonly elderly care, but also acute hospitals, medical office buildings, and uniquely in the German context, post-acute and preventative rehabilitation.
“By contrast, the UK offers opportunities in all subsectors, from primary medical centres and elderly care, private acute hospitals, NHS PFI concessions, retirement living, specialist supported living and behavioural health.
“UK healthcare real estate has attracted a diverse investor base; from UK and European institutions, international private equity and global specialist healthcare investors. Pricing has evolved to fairly reflect the balance of risk and return on offer, aided by transparent lease reporting requirements and established appraisal and underwriting standards which are largely absent in other key European markets.
“The liquidity of UK healthcare real estate investments is correspondingly high. In contrast to other European markets, UK transaction volumes tend to be less volatile from year to year, a reflection of the number of active participants and the volume of tradeable stock typically available.”
A healthy operator market is a vital counterpart to sustainable property investment in any sector. In this respect, the UK may be characterised as being no worse, and in many ways more inherently secure, than many of its European counterparts, added CBRE’s O’Brien.
Edward O’Brien, Senior Director, at CBRE European Healthcare, added:
“A further favourable feature of the UK for-profit operator market is a high degree of consolidation. The UK’s private acute hospital market is arguably the second most consolidated in Europe (after Germany) while the elderly care sector is second only to France.
“From a regulatory perspective, the UK health sector is subject to robust and transparent monitoring by the English Care Quality Commission (CQC) and its Scottish and Welsh counterparts, with shortcomings at operational level typically having a direct impact on real estate investment pricing.
“Investors can be confident that most existing care stock will comply with regulations in physical terms, in contrast for example to the position in Germany, where minimum standards set at federal state level have yet to be fully enforced and may impact adversely on operator cashflow in future, or in more immature markets such as Spain, where such regulations are yet to feature in underwriting decisions at all.
“The transparency, maturity and depth of the UK healthcare real estate market sets it aside from its European counterparts, and arguably it remains the only European country in which this sector may be truly regarded as core.”
