International real estate consultancy firm Cushman & Wakefield (C&W) recorded a transaction volume of around EUR 325 million in the German healthcare real estate market in Q1 2023 (Q1/2022: EUR 525 million). This is more than 40 percent less than in the first quarter last year. The decline in transaction volume is due to the uncertainty in the market, longer-lasting transaction processes and the changed financing environment.
Assisted living replaces nursing homes as top asset class
The largest contribution to transaction volume in the first quarter was from the assisted living segment, at almost EUR 190 million, displacing nursing homes as the leading real estate asset class in the healthcare sector. Nursing home transaction volume was around EUR 75 million. Of the total Q1 healthcare transaction volume, EUR 215 million came from individual-asset transactions, or around 66 percent, while four portfolio transactions contributed around EUR 110 million.
Jan-Bastian Knod, Head of Healthcare & Residential Advisory at C&W, comments: “The speed of transactions has slowed down considerably over the past six months. There is still sufficient liquidity for healthcare real estate in Germany, but the sources of capital for acquisitions have become more cautious. In particular, property quality and compliance checks with the ESG target criteria have gained still more importance and these add significantly to the length of transactions. Properties with low ESG compliance are more clearly penalised in order to minimise the risk of acquiring future stranded assets.”
Prime yields continue to rise
The prime yield for nursing homes is currently quoted at 4.4 percent. This is an increase of twenty basis points compared to the end of 2022. In the first quarter of last year, the figure was 3.9 percent. For assisted living properties, the figures range from 3.75 to 4.0 percent. Here, too, the trend of rising prime yields continues (Q1/2022: 3.0 to 3.5 percent, Q4: 3.25 percent to 3.50 percent).
New KfW funding conditions prevent construction from being halted
The new KfW promotional funds “Climate-friendly new construction – residential buildings” (Loan 297, 298) replaced the previous KfW promotional programme “Federal funding for efficient buildings” (Loan 261, 262) in March 2023. These attractive funding conditions are popular and enable owners, developers and investors to create urgently needed offerings in the care sector. “The demand for ambulant and inpatient care and residential places will continue to grow strongly in the next ten to fifteen years. It is therefore imperative to create additional capacity”, Jan-Bastian Knod is convinced.
Prime yield for nursing homes and assisted living continues to rise
The prime yield for nursing homes continued to rise in the first quarter and stands at around 4.4 percent (Q4 2022: 4.2 percent). The further deterioration in financing conditions and uncertainties in the market are the main factors behind rising yields. The prime yield in the assisted living segment was between 3.75 and 4.0 percent at the end of Q1 2023 (Q4 2022: 3.25 to 3.50 percent). For medical centres and medical care centres, the values ranged between 4.25 percent and 4.75 percent (2022: 3.75 to 4.2 percent).
