European elderly care investment market poised for growth despite Covid-19

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The European elderly care property investment market remained buoyant despite the challenges posed by Covid-19 as investors maintained confidence in the long-term opportunities with EUR7.2 billion of transactions last year, according to research from global property adviser Knight Frank.

This comes as the number of Europeans over the age of 65 is projected to grow by 50 per cent within the next 30 years, from 100 million at present to 150 million. This is anticipated to drive demand for elderly care beds, particularly for full-time nursing care delivered in specialised facilities. Investors seized upon this trend, as well as the increasing consolidation of European markets which has taken place over the last decade, to invest a record EUER8 billion in elderly care and senior living in the four quarters to March 2020.

Given these demographic and market factors, an increasingly wide array of investors is seeking out the opportunities presented by elderly care. The market, which has historically been state-controlled across the continent and has suffered from decades of underfunding by successive governments Europe-wide, has, in recent years, become increasingly dominated by private sector ownership, led by mature markets including the UK and Germany. This has addressed funding and investment shortages across Europe and transformed many domestic healthcare markets into pioneering systems, as is the case with the Netherlands’ specialist memory care services.

Alongside increasing private ownership, the investor profile in pan-European healthcare markets has become more international in recent years. While domestic buyers still lead the line in countries whose competitive environments favour local players, such as the UK, France and Belgium, overseas buyers have accounted for 43 per cent of European transactions since 2016, spearheaded by specialist listed investors such as the French and Belgian REITs.

The combination of Covid-19, increasing globalisation and major demographic shifts has highlighted the profound disparity in healthcare investment between European markets. Germany and the UK, the continent’s largest and most accessible healthcare markets, remain fragmented with the top 5 operators holding only a 12-13 per cent market share in these countries. Meanwhile, universal elderly care is a less developed concept in some Southern European countries such as Spain or Italy. However, with the over-80 population in Spain set to double by 2050 and Italy set to have the world’s second highest proportion of over-80s (12.8 per cent) by the same point, international operators and real estate investors are beginning to cut into these markets.

Julian Evans, Head of Healthcare at Knight Frank, says: “Demand for elderly care across Europe has remained high throughout the past few years, driven by demographic shifts and changes to domestic and international markets. Undeterred by the pandemic, investors have helped to address critical funding shortages across the continent and have transformed the landscape for European elderly care. An ageing population, the increased globalisation of elderly care and the spotlight shone on the importance of elderly care by the pandemic have all contributed to an increased appetite for healthcare assets, a trend set to continue going forward.

“The years ahead will undoubtedly bring challenges as investors tackle the post-Covid landscape, but confidence in the sector remains high and we expect to see a continued re-weighting of investors’ portfolios toward alternative real assets. The sector’s potential for strong returns is attracting a broad church of investors, and favourable trends taking hold across Europe are likely to increase this interest.”

The trend toward greater internationalism in healthcare provision, which has been brought into especially stark focus by the Covid-19 pandemic, has led to renewed attention to European healthcare. Demand is high and only set to grow in the coming years. An ageing pan-European population and a pandemic-induced step change in the value placed on global healthcare provision are to create a fertile market for both domestic and international real estate investors.

Knight Frank expects that after showing resilience in the face of the pandemic and notching near-record investment volumes in 2020, private sector investors in European elderly care are likely to maintain their momentum going forward, expanding in domestic and international markets to satisfy the need for high-quality and future-proof healthcare assets.