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Shift to higher quality in senior housing and healthcare sector

Having a pan-European strategy in the senior housing and healthcare sector is difficult as there are still differences in culture, market requirements and legislation, experts told Real Asset Insight.

“You really need local expertise and a good relationship with operators because regulations vary so much from country to country and sometimes within a country,” said Sabine Geuss, senior fund manager, healthcare, Principal Real Estate Europe. “In Germany for example every federal State has its own regulations and there’s always the risk of change.”

Sabine Geuss.

It is good to share best practice and import models from other countries, but it does not always work.

“So far we’ve focused on France and Germany but we would like to expand to the Netherlands, the Nordics and Austria,” said Nikolai Schmidt, managing director transaction healthcare, Swiss Life Asset Managers. “The problem is that they are very fragmented markets and each has its own regulations.”

Regulations can be a hindrance and a complication but when it comes to ESG and quality requirements it creates the right kind of competition, experts agreed. It actually helps to differentiate between companies, giving the best ones a competitive advantage.

“Regulation is not just part of our business but it’s also an opportunity,” said Frédéric Dib, president, Mozaic Asset Management. “It creates liquidity and consolidation, pushing bad players out of the market and allowing new entrants. It has also helped operators improve and become more professional.”

There is a definite shift to quality which will benefit the sector.

“The institutional capital we work with are targeting best-in-class operators,” said Stephen Miles, executive director, head of operational real estate investment continental Europe, CBRE. “Reputational risk is a real concern in this sector so operational excellence is a pre-requisite and it’s pushing out the lower part of the market and pulling quality standards up.”

ESG focus is helping to improve quality of property and operations

The focus on ESG is improving the quality of real estate and of the operational side as well.

“There’s an increasing differentiation in the market between buildings and between players, whether they are ESG-compliant or not,” said Charles-Antoine van Aelst, Chief Investment Officer, Aedifica. “Over time there’ll be a benefit on the valuation side as well. But it’s already a win/win situation.”

Stricter regulations and the lessons learnt during the pandemic are leading to improvements and upgrades which are positive for residents as well as staff.

“The operational side has been suffering and it will take time to recover from several waves of Covid-19 that had dramatic consequences,” said Benjamin Cabanes, director real estate, Korian. “But we’ve been improving our portfolio to make is easier to recruit staff. We need to be more attractive as an employer, so we are investing massively in human resources and in our buildings.”

Recruiting staff has become a problem for the sector. Companies like Korian are looking abroad but also targeting the young with apprenticeships and improving working conditions for everyone.

“Technology helps in many ways, but dealing with elderly people is a people business, it really needs human interaction, which is why the availability of qualified staff is such a critical issue,” said Schmidt. “It has become the biggest challenge for the sector.”

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