C&W report: rehabilitation properties in demand in Germany

Medical rehabilitation property in Germany is enjoying growing popularity in institutional investors’ portfolios due to its stable utilisation rates, secure cash flows via long-term leases, low-cost risks and attractive returns.

That’s according to a new report by Cushman & Wakefield, which focuses on the German market.

“Demographic change in Germany guarantees long-term demand for rehabilitation properties,” said Jan-Bastian Knod, international partner, head of residential investment for Germany and head of healthcare advisory at C&W.

However, the German operator market also presents challenges, characterised by fragmentation and smaller private providers operating their own properties. Currently, changes in the financing structure, rising energy costs, stricter quality standards and a shortage of skilled labour are causing economic difficulties for small operators in particular.

The report, which Patrizia and Primonial REIM also contributed to, highlights how, after three decades of major structural change, the German rehabilitation clinic landscape has found a new stability. The reasons for this are increased demand for rehabilitation and preventive measures due to the changing world of work, and the higher retirement age. Despite the pandemic years of 2020 and 2021, facility and patient numbers have stabilised and utilisation rates have risen continuously.

A solid investment

With secure cashflows and attractive yields on one hand, and outdated buildings and a fragmented operator market on the other, rehabilitation properties have proven to be a solid investment, but require specific industry knowledge. The more so as they are less established than other asset classes in the healthcare sector.

Demand clearly exceeds supply and it is assumed that clinics whose treatment specialisations have seen strong patient growth in recent years will increasingly become the focus for investors. These include, for example, indication-specific clinics in the fields of psychosomatics, orthopaedics and cardiovascular diseases. The market is currently seeing very few new operators, but is instead characterised by mergers and takeovers of individual facilities by larger operator chains.

In their role as a niche product, rehabilitation clinics offer an attractive diversification opportunity within the property portfolio, but also require investors to keep a close eye on market developments that may affect the structure and profitability of the asset class.

A noteworthy development in Germany is the strengthening of the right of choice, which will make it easier for insured persons to choose their own rehabilitation clinic in future. This means that the location and reputation of the facility will play an even greater role than before.

“Overall, rehabilitation property remains a promising investment opportunity in Germany,” said Knod. “The key to success is a thorough analysis of operator quality and profitability against the background of current and future requirements – then rehabilitation property can serve as an anchor of stability in a diversified property portfolio and offer investors sustainable long-term yields.”