Investment into Swedish and German care homes between January and September 2020 has increased by 80% and 21% year-on-year respectively, according to our latest research. These two countries accounted for 42% (Germany) and 23% (Sweden) of the total investment volume of €3.6bn in the European care homes sector during the first three-quarters of the year. Belgium, Finland and the Netherlands are also strategic care home markets targeted by investors.
Public specialised REITs, who have been pioneers in the market, are still the most dynamic players, notably Aedifica and Confinimmo. Nevertheless, a growing range of investors are now involved in the sector, including investment managers (such as Priminial, Patrizia, Threestones Capital, Syntrus) and listed property companies (for example SBB I Norden).
Despite the current health crisis, the care home sector remains very attractive for investors seeking a secure income as it is backed by solid long-term fundamentals. Based on recent deals transacted and others in the pipeline, we expect the year-end volume to slightly exceed €5bn, in line with last year’s turnover.
Yields under pressure as demand increases
The increased appetite from investors has put downward pressure on yields over the past two years, notably in Sweden, Germany and Finland, where prime yields hardened by 30, 20 and 10 basis points respectively. The prime care home yield currently ranges between 3.85% and 5% depending on country, location and quality of assets. We expect growing competition for care home assets will continue to put upward pressure on prices.
The EU-27 population in the age group 65 years
or over will rise from 92 million
in 2020 to 130 million by 2100
So where is the demand coming from? According to the European Commission, the total population of the EU-27 is projected to increase from 447.7 million at the start of 2020 to peak at 449.3 million by 2026. Meanwhile the age group 65 years or over will rise from 92 million in 2020 to 130 million by 2100. By 2050, they will account for 30% of the total population, up from 20% currently. Those aged 80 years or older, who currently make up 6% of the total European population, will account for 11% in 2050 and 15% in 2100.
Shift towards home care
However, it’s not just that the sheer proportion of the many elderly who will need care is rising; demand is also changing.
OECD figures on long-term care recipients among this age group show a growing trend towards home care. On average in Europe, the share of the population aged 65 or above receiving long-term care at home increased from 65% to 72% over the past 10-15 years.
There are several reasons for this rise. The first is sociological, as leaving home can be disruptive and distressing. The second is financial: home-based solutions are less expensive for the taxpayer. The third reason is technological advancements, including better monitoring and instant communication with health carers.
As a result, operators are increasingly looking to increase their offerings in both care home and home care services.
The three major European care operators have recently expanded their offers, increasingly including senior housing residences on the same sites as their care homes. Unlike care homes, senior housing does not provide 24/7 nursing.
In countries such as Germany, Belgium, Finland and Portugal, the two types of residences are often combined within the same complex. The model allows for both non-care and care-intensive solutions as the needs of its residents change over time.
At the other end of the spectrum, in France, the success of senior housing deeply relies on the distinction between the types of residences, with the senior housing concept promoting the image of independent elderly people.
While there are cultural differences, we expect the two models will increasingly be mixed, driven by expansion and M&A strategies between care home and senior housing operators. In June, Korian bought Les Essentielles in France, a portfolio of 11 senior housing residences, while a few years ago, Orpea and DomusVie started developing new senior housing brands (France Senior and Templitudes respectively).
With many public bodies and institutions looking at the sector and ongoing changes to the care home model, we expect new concepts will continue to emerge from the crisis in the medium term.
