There are two sectors that tick all three ESG boxes for their positive impact on the environment, society and governance, experts agreed at Real Asset Media’s Senior Housing & Healthcare Investment briefing, which took place recently at MIPIM in Cannes.
“Until now capital has focused on the E, the greening and energy efficiency of buildings, but now it’s looking at the social aspect like in the US,” said Stephen Miles, executive director – head of operational real estate investment, continental Europe, CBRE. “It’s all coming together, because people realise that you have to have the complete package.”
In the healthcare sector it has often been the other way round, with social impact coming first and the sustainability angle being looked at later.
“Healthcare is very focused on the S, the social impact is clear,” said Dietmar Zischg, partner, CMS Adonnino Ascoli & Cavasola Scamoni. “We assist investors in setting up dedicated healthcare funds, but then usually work is needed on the E because existing stock is not compliant. But they find that capex improvements drive down service charges, so it’s a positive.”
A well thought-out ESG strategy is now an absolute must and this trend is being driven by investors and lenders more than regulators. Regulations also vary in different European countries so companies have to adapt and be pro-active.
“Sometimes we have to anticipate regulations, because we can’t wait,” said Raoul Thomassen, chief operational officer, Aedifica. “But future-proofing our portfolio is crucial to us, because we are building for the next thirty years.”
European senior housing and healthcare are becoming less alternative and more mainstream as they attract more institutional capital that is keen to diversify.
“Many pension funds and insurance companies will try to widen their footprint in the sector and many operators will try to develop a platform,” said Cushman & Wakefield capital markets partner Jan-Bastian Knod, head of residential and healthcare advisory. “French operators now cover all European countries, which makes it interesting for institutional capital looking for core product, because it’s a guarantee of quality.”
As institutional capital comes in, developers will see the opportunity and bring more product to the market.
“We focus on Germany and France but we want diversification so we are looking at Spain and Italy, where we see potential because of the shift from family care to professional care in specialised facilities”, said Nikolai Schmidt, managing director – transaction health care, Swiss Life Asset Managers.
Investors are increasingly crossing borders
Germany and France are the biggest markets in Continental Europe, where investors can find the best opportunities of portfolio deals, but investors are increasingly casting their net wider.
“Operators are beginning to cross borders and bring their expertise to countries like Spain and Italy,” said Caryn Donahue, head of senior housing transactions, Savills. “I see more consolidation happening in the market.”
There is a lot of choice for investors, as these asset classes have many sub-sectors they can choose to focus on.
“There is no lack of demand from investors, but capital feels most comfortable with independent living,” said Miles. “There is huge scope for institutional capital to come in and expand that part of the market, providing the right types of accommodation so people can live independent lives for longer.”
Hybrid schemes, which provide a combination of independent and assisted living, are also becoming more popular in some European countries.
“There’s a shift underway from nursing homes to assisted living, because it’s less regulation-intense and it needs less staff,” said Schmidt. “It is very difficult to find qualified staff to work in nursing homes.”
Looking at the US market, which is more mature, gives an idea of the next steps that need to be taken in Europe.
“In the US the sector is much better understood by investors, while Europe still has a long way to go,” said Donahue. “In the US, for example, there are clear definitions for the many sub-sectors, while in Europe it’s difficult for entrants to know what is being talked about.”
Terminology is a real issue that can deter new entrants and confuse existing players.
“If you want to attract institutional capital to the market you have to make it easier for them and naming conventions would be an important first step,” said Miles.