SHHA report: challenging times but bright prospects
Market conditions are challenging but the senior housing and healthcare sector’s fundamentals remain strong and its prospects bright, experts agreed at the presentation of the new SHHA annual report at MIPIM in Cannes recently.
“As the interest rate environment has shifted sharply, investment markets have more or less stalled and we expect 2023 to be a transition year in which a balance needs to be found between investment market and operator expectations on the one hand and increased financing costs on the other,” said Raoul Thomassen, chief operating officer, Aedifica. “But even in this context, healthcare real estate will remain an attractive asset class in the coming years, thanks to very strong fundamental tailwinds such as the aging European population and the increasing need for futureproof care properties.”
The level of uncertainty in the market and high inflation, rising interest rates and high energy and construction costs are weighing on the sector but, whatever the economic outlook, demographic trends are beyond question. Ageing populations in all European countries make the senior housing and healthcare sector more relevant and needed than ever.
“It is an indisputable fact that the European population keeps on growing older while the existing accommodation capacity is limited and is often in need of extensive refurbishment,” said Sébastien Berden, COO-healthcare, Cofinimmo. “This offers interesting perspectives for investors willing to underwrite operator quality, understand regional differences and dig into the details of each care segment.”
It is a question of navigating current challenges and finding a new equilibrium between realistic prices and price expectations and between investment market and operator expectations on the one hand and increased financing costs on the other.
A positive for the senior housing and healthcare sector is that it is in line with market players’ increasing demand for ESG-compliant investments, said Ron van Bloois, Chair SHHA: “In terms of ESG and social outperformance, senior living and healthcare real estate ticks all the boxes.”
Another positive of the sector, given the uncertainty in the market, is that it meets investors’ current need for core assets and long leases.
“There is a lot of dislocation in the market and many groups, including pension funds, now need to sell, which is a big change from six months ago,” said Andrew Smith, partner, Northern Horizon. “Turmoil in the market has led to a flight to core products like ours, which is why we were able to raise the biggest fund ever and now have plenty of dry powder.”
The current slowdown in the market is presenting opportunities for nimble investors who have a longer-term view, know how strong demand is and want to be in a strong position when things pick up again.
“Lower investment and development activity in 2023/2024, combined with the arrival of the 80+ baby boom generation into the sector from 2025, is likely to result in the market having to catch up with the increase in demand for quality and adapted healthcare real estate”, said Charles-Antoine Van Aelst, Chief Investment Officer, Aedifica. “This will likely lead to a lot of investment opportunities for specialised market actors once a new market balance is found.”
The new SHHA report aims to present experts’ views on the market as well as focus on the biggest investments markets in Europe – UK, Germany and France – and highlight examples of best practice in the market.