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March 3, 2024
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Savills Blog | Navigating the Pulse of Healthcare Real Estate: A 2023 Review and 2024 Outlook


The healthcare and senior living property market has always been resilient in market downturns, largely due to the necessity of its stock, its strong covenants and the amount of Government funding it receives. However, in a year when the commercial real estate market faced significant economic headwinds, the sector hasn’t been immune to the slowdown of investor activity, with transactional volumes reaching £811 million, compared to £1.8 billion in 2022.

Looking ahead, as the markets stabilise, and debt costs begin to normalise, we expect new opportunities to come to market in H1 2024, with transaction volumes starting to pick up again in Q2/Q3, with some new trends coming to light:


Stretched supply vs increasing demand 

Across the spectrum of the market, there is a lack of supply to service the demand. Last year witnessed a surge in the repurposing of existing properties for healthcare use, but as this is not a long-term solution, and with the demand for space continuing to increase, we should expect to see a rise in planning applications for new healthcare developments over the next twelve months.


Local Authorities prioritise elderly care

Covid-19 highlighted the need for quality accommodation in the elderly care sector with purpose built single occupancy areas. It also put additional pressure on Local Authorities to ensure elderly care is a priority, especially given our aging population. Despite the financial pressures experienced by Local Authorities, we expect to see more of them developing care homes and extra care facilities, due a reduction in supply, and their obligations to support care in their communities. 


Golden age of renting

With home sales down due to the market conditions, the senior living market, which traditionally saw people selling their own home to purchase in a retirement scheme, is beginning to shift towards a rental model. With Birchgrove (a retirement living operator) reporting that two of its three later living Build to Rent communities are now at full occupancy, this is something we expect to see more of in the coming year.


Non-core healthcare investors enter hospital space

As the NHS backlog remains, patient demand for private surgeries is at a market high. These demand fundamentals, coupled with the attractive long term index-linked lease income, and strong operator covenants, are sure to attract new investors to the space, which historically has been dominated by healthcare REITs or specialist healthcare investors. We have also seen historically primary care investors, such as Assura and PHP targeting this space as an adjacent strategy to their primary care portfolios.


Rehab and recovery centres hit the market

Considering the lack of space and large backlog in NHS hospitals, and around 190 private hospitals across the country, we expect an increase in post- operative rehabilitation and recovery, to help unblock hospital beds. Traditionally, recovery takes place in hospital or at home, but drawing on learnings lessons from the US, investors will start turning their focus to these centres, with Bridges Fund Management announcing a new platform aimed specifically at this market. 

It’s set to be another busy year with a lot of activity for the healthcare and senior living market as the sector remains a positive alternative to traditional commercial sectors. We expect an increase of activity in 2024, as the macro climate begins to stabilise and the beds trend continues to be a main strategy for most mainstream investors globally.

 

Further information

Contact Craig Woollam, Caryn Donahue or Rick Savage

Spotlight: UK Care Home Development



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