Strong returns for healthcare market

By Paul Norman - Tuesday, March 13, 2018 7:00

Care homes, independent hospitals and primary care assets are achieving a higher combination of average annual rental income returns and five year annual capital growth compared to many of the mainstream investment markets, reports Savills.

Savills reports that the three healthcare markets sit marginally behind the very popular urban logistics sector and ahead of other sectors including regional logistics, retail warehouses, UK residential and central London offices.

Chris Wishart, healthcare director at Savills, said: “Offering a combination of secure income streams from a variety of sources, such as the NHS, Local Authority and self-funded markets, healthcare assets are now seriously competing with the more mainstream investment markets. This mix of revenue security from Government-backed funding sources seen in primary care and independent hospital assets combined with increasing private self-funding markets seen regularly in the care home sector, provides comfort to investors that sustained growth is expected for each of these markets.”

Savills research also highlights that there is still room for some inward movement in terms of yields within the healthcare sector in comparison to the mainstream commercial markets. The firm confirms that prime care home yields in particular have compressed by 100bps in the last 12 months and, whilst it is unlikely 2018 will see movement on a similar scale, yields for this market are expected to fall below 4% for most prime opportunities.

Alex Crawley, healthcare director at Savills, said: “Following a significant hardening of yields over the last two years within the primary care sector which is as a result of income security and a lack of product in the market, prime yields now stand at low 4%. With investor demand remaining strong, we expect some further yield compression this year.”

Wishart added: “The nature of the healthcare market is one of consumer driven demand, often through need rather than choice. However, the sector has undeniable drivers for increasing demand as the need for primary, acute and social care increases and an aging population that will see the number of people aged over 85 triple by 2055. All of these factors combined have seen healthcare, which has traditionally been categorised as ‘alternative’, align itself more with the mainstream market and the rise in returns and capital growth are a reflection of the long term secure income, consumer demand and Government backed income in the sector.”



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