Cushman & Wakefield (C&W) recorded transaction volume of around EUR 186 million in the German healthcare real estate market in Q4 2023 (Q4 2022: approx. EUR 700 million). This brings the total transaction volume in the healthcare real estate sector in 2023 to around 1.0 billion, a fall of more than 57 percent compared to the previous year.
Year-end rally fails to materialise in 2023
With a transaction volume of EUR 186 million, the fourth quarter of 2023 was the weakest of the past five years. The care home segment generated the majority of this at around EUR 100 million, while around EUR 60 million was generated by properties in the assisted living sector. The remainder was accounted for by the ambulant medical care segment. Portfolio transactions dominated in the range of EUR 121 million and accounted for around 65 percent of market activity.
Prime yields remain stable
The prime yield for care homes in Germany remained unchanged at 5.10 percent in the 4th quarter. In the case of assisted living, the figure also remained stable at 4.50 percent. The prime yield for ambulant medical care facilities (MVZ) is between 4.50 and 4.75 percent, and for inpatient medical care facilities (clinics) between 5.50 and 6.00 percent.
2023 marked by uncertainty and lack of transparency
Jan-Bastian Knod, Head of Healthcare Advisory Germany at C&W, comments: “A stabilisation of prime yields for healthcare real estate has been evident since late 2023. The rapid increase was due to the uncertainty that prevailed in the real estate market from late 2022. The main drivers included high inflation rates, the rise in the ECB's key interest rate, and the rapid rise in operating costs for operators and construction costs for developers. However, the paralysis seems to have been broken and market sentiment is warming into 2024.”
Sources of capital seek higher returns and place greater focus on ESG
The increased operating costs for operators of care homes are also relevant for owners and investors in terms of the profitability of operations and securing rents. “Not only has the required rental covenant increased, but sources of capital have higher return requirements due to the changed financing environment, and an ever-increasing proportion of real estate investors are pursuing an ESG investment strategy”, Jan-Bastian Knod continues.
Demand for residential and care places continues to rise, supply is barely keeping pace
The number of people requiring care has risen steadily in recent years, reaching the 5 million mark in 2021. According to current care projections, the number of people in need of care is expected to increase by a further 14 percent by 2035 – with the proportion of higher care requirement levels also rising. Such a level of demand could not be met today. This makes it all the more important to create incentives for the realisation and commissioning of further care places in the coming years.
