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EXPO Real: Interest rate hikes halt Senior housing deals

Demographic fundamentals underpin future demand but current market conditions have brought transactions to a standstill, experts agreed at Real Asset Media’s Senior Housing & Healthcare briefing, which took place yesterday at the International Investors Lounge at EXPO Real.

Stefan Voss.

“Investors are not able to pay the same prices, as rising interest rates are making financing more expensive”, said Nikolai Schmidt, Managing Director, Transaction Health Care, Swiss Life Asset Managers. “The main challenge over the next twelve months will be finding an equilibrium between the price situation on the market and our yield expectations”.

It will take a while to find this balance, and in the meantime there are likely to be very few transactions in the market.

“In my experience transactions are either on hold or have been cancelled”, said Stefan Voss, Partner, CMS.

The market situation is particularly challenging for project developers. With high financing costs, high construction costs and high land costs, something’s got to give.

“The challenge for developers is accepting that land values will have to come down, a haircut is inevitable”, said Marcus Roberts, Head of Europe, Savills Operational Capital Markets.

Marcus Roberts.

Investors are increasingly anxious, said Yeliz Bicici, Chief Operating Officer Offices & Real Estate Development, Cofinimmo: “There is a growing uncertainty about pricing and the evolution of the operational business model, but on the other hand it is clear that the need for care is increasing”.

The top seven countries in Europe (UK, Germany, France, Italy, Spain, Belgium, the Netherlands) already have 75.5 million people aged over 65, and that number is set to increase significantly.

Rising demand will continue to drive the market, while he counter-cyclical characteristics of the healthcare and senior housing sector have driven returns, which have been higher than in other real estate sectors, according to Savills data.

“Total investment has risen significantly over the past few years, with €5.7 billion invested in 2021 in the top seven European countries, compared to an average of €2 billion a year between 2013 and 2018”, said Roberts.

[Images: Sabine M Mairiedl, Munich]

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