Growing demand for senior housing across the Nordics

Demand for senior housing is strong and growing across the Nordics but there are high barriers to new entrants, delegates heard at the Senior Living and Care in the Nordics in-depth seminar, organised by SHHA and Real Asset Media, which took place online this week.

“We work closely with the municipalities and we see a big need for senior homes,” said Martin Persson, transaction manager, Skanska, Sweden. “Our assessment is that at least 500 must be built before 2030, but they are complex assets to build so it’s not easy for a new developer to enter the market.”

In Sweden, a government agency supervises the sector and has strict demands and detailed rules on how care homes must be built. Barriers to entry are high: the authorities want players who are committed over the long term, so it is difficult for foreign players to get established.

“We are building ten care homes in Sweden and we work hard to design the assets in the right way,” said Jon van Geffen, head of growth & real estate, Ambea. “Demand is huge, but the politics make it hard: out of 290 municipalities in Sweden, only five have freedom of choice, meaning that private companies can compete with the State. Many municipalities don’t want to buy places from us in care homes.”

By contrast, Denmark has freedom of choice legislation in place at a national level, so people can choose the private sector over the state sector.

“We see huge potential in the Danish market,” said van Geffen. “But the demand is similar in both countries: we need 460 more care homes in Sweden alone and the same in Denmark over the next ten years. Developers, investors, managers and operators will all have a role to play.”

It is likely that care homes will have to be larger in future to accommodate growing numbers of residents.

“There are 240,000 beds in the market now and our calculations are that we need 70,000 more by 2030 and 200,000 more by 2050 because of longer life spans,” said Jussi Rouhento, fund manager, managing director in Finland, Northern Horizon. “Asset sizes will need to be bigger and consolidation in the sector is also likely to continue.”

Northern Horizon has enjoyed first-mover advantage, because it started 15 years ago as soon as the market in Finland opened to private operators and realised that the sector had potential and private equity investment was much needed.

“We saw the opportunity and started as a local platform in Finland, cooperating with healthcare operators,” said Rouhento. “We became a specialised fund manager in what was a niche sector in the Nordics. Timing and team work are the key elements of our success”.

In the last 15 years Northern Horizon has launched five healthcare funds and now has over 170 healthcare assets and AUM of €1.5 billion.

“Northern Horizon has been very successful at raising European capital that is keen to get exposure to the Nordic market,” said Charles Favard, managing director, head of EMEA real estate, private funds group, UBS, UBS Investment Bank. “Pension funds and other international investors are very keen to enter the market, but they want someone with a good track record and a big team across the Nordics.”

A knowledge of the market and of local regulations is crucial to success in a highly regulated sector, with differences between countries and between municipalities as well.

“In the Nordics we see local market peculiarities that create barriers to entry,” said Clive Drury, Nordic lead, operational real estate, JLL Sweden. “It is important to have local operators who know the market well, because in this operational sector the managers are an integral part of the real estate.”