Specialist Property Sector Report 2017: Healthcare
As part of a five-part series of posts focusing on the UK's specialist property sector, Knight Frank's experts analyse the UK healthcare investment market highlighting key trends, opportunities, investment market performance and future predictions.
2 minutes to read
Factors bringing market momentum during 2017
The appetite for long-dated healthcare income from domestic and international funds is at its highest levels in 20 years. UK healthcare now attracts a broad church of global investors. Increasing operator stability as occupancy rates improve further.
Care Homes are seeing ever increasing occupancy levels (88.4% for the financial year 2015/16*) and as such, represent an increasingly stable business to investors seeking to balance risk and return.
Our 2016 Care Homes Trading Performance Index also showed that average weekly fee levels of £694 were achieved across the care homes sector during the financial year 2015/16.
This represented a 2.7% increase on the previous financial year, significantly above RPI inflation over the same period. Furthermore, local authority fees are on the rise, which is enhancing the underlying performance of the sector.
Several local authorities have already agreed fee uplifts of 5% from April 2017 and 8% for self-funders.
Factors that may serve as a brake to momentum during 2017
Brexit may have major implications surrounding access to labour, in particular overseas nurses and doctors. There is a desperate need for new future proof facilities but the inflationary cost of new raw materials and increasing labour costs has stymied many new build developments.
Knight Frank’s 2017 Healthcare Development Opportunities Research identified a deficit of 2,612 beds and the under capacity is now being reflected via increasing occupancy levels within care homes.
The opportunity/value for investors
Significant forward funding opportunities exist across the spectrum of healthcare registrations including care homes, hospitals and surgeries.
The Midlands and the North are now very much target locations for an array of operators and investors looking fora higher return on capital. However, the M25 and M4 corridor still remain strong areas of opportunity.
"UK healthcare fixed income continues to attract global capital and is now considered a core asset class."
_Julian Evans, Head of Healthcare & Hotels,
Attractions to investors from other specialist asset classes
The Care Homes sector has characteristics that are palatable to many already vested in other specialist sectors, notably Hotels, where performance is focused on occupancy, is EBIDTA driven and businesses are bespoke and asset based.
What factors do new automotive property investors need to be aware of?
There is an extensive policy and regulatory framework that investors need to be acutely aware of and constantly monitor. The physical requirements of the built environment are highly specialist and need to be considered from a flexibility, obsolescence and maintenance perspective.
State funding underpins the performance of many care homes and changes in this dynamic need to be understood, acknowledged and responded to.
Predictions for the healthcare property sector
Funds from Asia-Pacific will be the new entrants into the UK care home market. Yields have hardened but will hold. The market will display further maturity with the emergence of new operating companies.
For more information about investing in this specialist property sector please visit Knight Frank's dedicated healthcare property sector page.