- Healthcare sector concludes Integrated Care Agreement
- Number of people waiting for housing with long-term care is rising
- Healthcare institutions more often in financial difficulties
- Transaction volume historically high in third quarter
- Turnaround in initial yields
Integral Care Agreement concluded
On Friday 16 September, the Integral Care Agreement (IZA) was concluded. The IZA was broadly supported and signed by ActiZ, the Dutch Mental Health Association, the Federation of Medical Specialists, InEen, the Dutch Federation of University Medical Centres, the Dutch Hospitals Association, the Dutch Patients Federation, the Association of Dutch Municipalities, the Dutch Nurses and Carers Association, Independent Clinics in the Netherlands, ZorgthuisNL, the Dutch Health Insurers and the Ministry of Health, Welfare and Sport. In the IZA it was agreed, among other things, that parties will cooperate more intensively with each other, primary care will be strengthened and there will be more focus on prevention. It should also be and remain attractive for healthcare providers to work in healthcare. Healthcare real estate can contribute to the ambitions from the IZA by housing local health centres and with housing that allows longer living at home, with attention to the well-being of residents and buildings that contribute to green and climate-neutral care.
INTEGRAL CARE AGREEMENT
Source: Central government and cooperating parties (2022)
Number of people waiting for housing with long-term care is rising
The number of people waiting for long-term care and needing suitable housing rose sharply to over 24,000 in August and September. The precise causes of this are not known. Most are waiting for a place in turn, but there are also nearly 5,000 people who need to be placed within a few months. The group of elderly people waiting in turn - eager to live in a protected environment but not yet meeting all the conditions - amounts to almost 17,000 people. The ideal solution for this group could be life-proof housing in a clustered environment with care within easy reach. Unfortunately, that supply is not yet sufficiently available.
WAITING FOR LONG-TERM CARE HOUSING
Source: Healthcare Institute Netherlands (2022), edited by Syntrus Achmea
Healthcare institutions more often in financial squeeze
An increasing number of healthcare institutions are already or will soon be in financial difficulties. This is the finding of accountancy firms BDO and EY based on analyses of annual reports for 2021. A survey by Finance Ideas among healthcare financiers on financial expectations for 2022 shows a similar picture. In some cases, this may put pressure on the financial continuity of healthcare institutions.
Some of the problems are structural in nature. Healthcare institutions face labour shortages due to absences and departing staff. Hiring expensive external workers is increasing costs. This is a serious financial problem, but it also threatens the accessibility and quality of care, according to regulators NZa and IGJ. Purchasing costs have also risen due to inflation and high energy bills, and index-linked leases bring additional costs. In 2020 and 2021, government ‘covid-compensation’ measures still contributed to the result, but these are slowly being phased out. The recalibration of the so-called normative housing component, which was covered in the Investment Update August 2022, reduces the income from the capital cost reimbursement of real estate.
The gloomy financial outlook is not yet leading to additional bankruptcies. The decline in bankruptcies in the healthcare sector in the second quarter continued in the third quarter. A particularly strong decrease was visible in the 'care' and 'welfare' segments. The number of bankruptcies in the care sector remains very low. Due to the financial and economic uncertainty, the investment climate for healthcare institutions is deteriorating. Investments are being postponed or downsized. Investors in healthcare real estate should be alert to the financial position of healthcare institutions that rent. At the same time, investors can play a positive role in the challenges facing healthcare real estate.
HEALTH CARE BANKRUPTCIES (2-QUARTER MOVING AVERAGE)
Source: CBS (2022), edited by Syntrus Achmea
Transaction volume historically high in third quarter
Partly due to two transactions of more than 100 million euros, investment volume in the third quarter reached a historically high level. A volume of almost 1 billion euros through the third quarter is also a record. Compared to the same quarter in 2021, there were more transactions and the average investment volume was also higher. Healthcare transactions are long-term processes and transactions are a result of trajectories initiated earlier in the year or even the previous year. Although individual transactions can strongly shape the picture, in this quarter the share of buyers originating from the Netherlands proved to be relatively high. Institutional investors, private investors and property funds were the main buyers, buying significantly more than a year ago. In contrast, listed real estate funds bought much less and, together with healthcare institutions, were the main sellers of healthcare real estate. For the coming quarter, a positive effect on transaction volume will be visible due to the increase in transfer tax from 1 January. On the other hand, changed market conditions will depress transaction volume in the coming quarters (see also ‘outlook’).
INVESTMENT VOLUME HEALTCARE REAL ESTATE (PER QUARTER, € BILLION)
* data 2015-2018: CBRE, 2019-present: Capital Value
Source: CBRE (2021), Capital Value (2022)
Turnaround in initial yields
While changing market conditions are not yet directly reflected in transaction volume, this is the case for prime gross initial yields. For curative real estate, such as primary and secondary care real estate, prime gross initial yields have demonstrably increased in the past quarter. For residential-related healthcare real estate, prime initial yields have remained stable in the past quarter. There are signs that, following in the footsteps of other property segments, an upward movement will take place here, too, in the coming quarters. This will especially be the case for new projects and transactions not subject to past deals. The attractive investment characteristics of healthcare real estate, such as its relative insensitivity to economic fluctuations and the potential for making a positive impact, continue to generate above-average investor interest. Nevertheless, even healthcare real estate will not escape general investor caution (see also ‘outlook’).
PRIME GROSS YIELD (INCLUDING BUYERS COSTS, PER SEGMENT)
Source: Capital Value (2022)
During 2022, conditions in the investment market changed and increased interest rates made financing more difficult. Listed real estate funds faced price declines and, among institutional investors, the relative share of real estate in the total investment portfolio rose sharply. Higher construction costs make new construction more difficult to achieve. Moreover, there is political and economic uncertainty. Certain investors will therefore pause for a while. Others will continue to invest, but on different financial and qualitative terms. The changing competitive environment and decreasing price and yield pressure, which we already saw in the previous Investment Update, will continue. On balance, these developments will lead to lower transaction volumes and rising yields in the coming quarters. For healthcare real estate, these effects will be less pronounced than for other property segments.