The rehabilitation real estate asset class enjoys great popularity as a component of institutional investors’ portfolios, thanks to stable utilisation rates, secure cash flows via long-term leases, low cost risks and attractive returns. Post- pandemic facility and patient numbers stabilised in 2022 and utilisation rates increased continuously, reports international real estate consultancy firm Cushman & Wakefield (C&W). Rehabilitation clinics remain an attractive investment for institutional investors seeking long-term stable income with indexation.
Low transaction volume and high yields
Extremely high demand, low product availability and net initial yields of between 5.5 and 6.0 percent have characterised the German rehabilitation clinic investment market in recent years.
The review shows strong volatility in transaction volumes due to fluctuating product availability. While German rehabilitation clinic transaction volumes since 2010 have often been less than 200 million euros, 2014 and 2018 saw unexpectedly high volumes of just under 1 billion euros.
Currently, there is a slight decline in transaction activity, and the difficult financing environment is also inhibiting M&A activity. For 2023, C&W recorded a result of 67 million euros, which is below the long-term average.
Jan-Bastian Knod, Head of Healthcare Advisory at C&W, explains: “The demographic shift in Germany guarantees permanently high demand for rehabilitation properties, which enjoy great popularity among investors as resilient assets that function independently of the economic cycle, despite the current challenges in the transaction market. The lack of product is hampering stronger market activity. We would have seen five to ten times the transaction volume in recent years if there were more rehabilitation clinics on the market.”
Many buildings date from the 1990s
Inpatient rehabilitation in Germany boomed from the late-1980s to the mid-1990s. In order to meet the demand for inpatient rehabilitation places, numerous clinics were built, many of which are still in operation today. With the more restrictive prescribing of rehabilitation treatment since the mid-1990s, construction activity in the sector declined. Many of the facilities currently in operation are 35 years old or more.
The structural requirements for rehabilitation clinics are determined by the German Pension Insurance Funds. According to the Disability Equality Act (§ 4 BGG), regardless of the treatment focus of the facilities, accessibility must be guaranteed without restriction in every rehabilitation clinic. Over the past 30 years, the number of facilities across Germany has fluctuated between 1,100 and 1,400, largely triggered by changing legal requirements and case numbers. Currently (status 2022), there are 1,089 facilities in Germany with a total of 161,725 beds and a utilisation rate of 74.9 percent.
Private and public sector operators
Private operators continue to dominate the market for rehabilitation clinics, with a market share of 54 percent via 589 facilities in 2022. The German Pension Insurance, as one of the largest public institutions, currently operates 102 institutions. Overall however, public bodies only account for 19 percent of the total market.
The private market is characterised by mergers and acquisitions, as smaller clinics are bought out by larger operators. In 2014, for example, Waterland acquired the shares of Advent and Macrol in Median Kliniken, before the latter was merged with RHM Klinik- und Altenheimbetriebe, which also belongs to Waterland. Later, Median Kliniken and the AHG Allgemeine Hospitalgesellschaft, which had a portfolio of 45 facilities and ambulant services, were merged. In 2018, the rehabilitation and care division of Helios was taken over by the Austrian healthcare real estate company Vamed.
The trend towards the purchase of individual facilities is supported by the generational change in owner-managed rehabilitation clinics, for which there is often no suitable and financially liquid successor. Changes in the financing structure, rising energy costs, stricter quality standards and a shortage of skilled workers are currently posing economic difficulties for small operators in particular.
Differences in a European comparison
The focus of rehabilitation in Germany remains on inpatient treatment. In 2022, for example, 1.5 million patients were treated in preventive and rehabilitation facilities. Musculoskeletal and connective tissue ailments were the most common reason for inpatient rehabilitation stays, accounting for some 33 percent. Despite the size of the German healthcare system, it is not at the top of the European rankings. In terms of waiting time for treatment or accessibility of services, for example, Switzerland, the Netherlands and Sweden are in first place.