SHHA Summit: next year ‘real turnaround’ in care homes

Care home provision in Europe is falling despite the fact that demand is greatly increasing, delegates heard at the Senior Housing & Healthcare Summit, organised by SHHA and EPRA, which took place yesterday in Brussels.

“At the moment there’s an inability to meet the needs of people, as the availability of care home beds is falling in many countries,” said Richard Valentine-Selsey, head of European living research and consultancy, Savills. “However, more investors are willing to deploy capital in the sector. Being realistic we’ll have to wait, but next year we should see a real turnaround.”  

The number of beds in residential long-term care has increased in the Netherlands, Sweden and Germany, but it has declined in France, Austria, Ireland and the UK. Denmark, Italy and Poland have seen the sharpest two-digit falls.

Europe’s population is ageing fast. The percentage of the population over 65 years of age varies from a low of 12% in the Netherlands and 15% in Ireland to 22% in Portugal and Germany and a high of 23% in Italy. Demand for care homes will grow rapidly as the number of over 65s is set to rise in all countries over the next two decades.

An obstacle to provision is the fragmentation of the market, Valentine-Selsey said, with very little concentration of ownership in most countries. The UK is in a unique position, with over 80% of the market in private hands and Germany hovers around the 40% mark, while the Netherlands, Spain, Italy and France are around the 20% mark or below.

The good news is that investment across senior housing and healthcare continues to increase as a percentage of all investment in the living sector and has now reached 13%. While in the last few years care homes attracted more capital than senior living, in Q1 2023 for the first time the investment has been evenly split between the two.

The UK and Germany have been the most active markets in the past 12 months, accounting respectively for 30% and 28%, far ahead of France with 11%, Sweden, Italy and Spain at 4% and Portugal at 1%.

Across Europe investment activity in the sector has been driven by cross-border capital, a mix of institutions, private and REITs, which has accounted for 42% of the total. The capital has come primarily from France and Belgium, but also from the US, UK, United Arab Emirates, Switzerland and Luxembourg.

“Investors are attracted by the consistent annual returns that healthcare provides,” said Valentine-Selsey. “In France one-year returns are close to 10%, in Germany and Sweden five-year returns are over 8% and in the UK ten-year returns are over 7%.”

In the next three years investors aim to increase their allocations to the broader living sector, according to a Savills survey: most are targeting multi-family, PBSA and co-living, but 43% are opting for senior living, while care homes, seen as a more niche subsector, spark the interest of only 24% of investors.

“Those who are targeting the sector are looking to deploy a significant amount of capital,” said Valentine-Selsey. “Around 33% of investors are aiming to deploy €100-€500 million in care homes, while 11% are willing to invest between €500 million and €1 billion, with another 11% ready to deploy over €1 billion.”

Most investors are keen to pursue pan-European strategies, according to the Savills survey, but there are barriers that need to be overcome in order to unlock that investment.

“The biggest barriers are the pricing and return profile, access to stock and scalability, regulatory risks and operational risks, while lack of familiarity with the sector is not seen as a barrier at all,” said Valentine-Selsey.

In conclusion “in the short term there are some headwinds facing the sector”, he said. “But the long-term fundamentals remain strong.”