Care sector: a specialist asset class

SPONSORED CONTENT FROM PATRIZIA

Over the next 15 years, the number of care-dependent individuals is set to rise dramatically. In Germany, the proportion of people aged over 80 already stands at five per cent. By 2030, that number will almost double to nine per cent.

This increase is particularly significant, as it’s the age at which many people find themselves needing permanent residential care.   

It will be a considerable challenge to meet the substantial demand for residential care options, including assisted-living accommodation and nursing homes, across Germany.

Above average, stable returns

Interest from institutional investors in healthcare real estate is therefore well founded. It’s a sector that provides above average returns and is, to a large extent, less susceptible to economic cycles than, for example, the retail or hotel sector.

In addition, residential care properties tend to be let on lease terms of 20 to 25 years and are therefore considered a stable investment. The default risk is relatively low, as a change in ownership of such properties is rare compared to other sectors.

Recent changes in regulations have made it possible for private investors to invest directly in residential homes, rather than, as was the case previously, only via special funds. This trend towards part-ownership, which may also include the purchasing of a single room within a home, is not without risk.

Small investors should be particularly wary of investing directly in one home, as the business model of the home may not be transparent, competitive or even viable. There are, moreover, a number of additional hidden challenges, too.

Pitfalls and fragmented regulations

In Germany, government regulations can be a major pitfall. The market is regulated on a regional level by different state-level care home legislation in each of Germany’s 16 states.  This means that there is a complexity of inconsistent regulations not seen in other sectors.  

This type of asset class is a very specialized kind of investment and one that requires very specific expertise

This type of asset class is a very specialized kind of investment and one that requires very specific expertise. Without in-depth knowledge of the market, such small investments could soon turn sour.

Investors should also be aware of regional differences in demographics, which can be profound, but also in the labour market.

A shortage of skilled nursing professionals could make a region less attractive, for instance, even though the old-age dependency ratio is expected to rise in that area.

Providing transparency and insight

Heppenheim, not far from Frankfurt, meets both demographic and labour criteria. PATRIZIA recently purchased a care home complex in the town for the fund PATRIZIA Pflege-Invest Deutschland I”. Built in 2008, “Sankt Katharina” offers 124 beds and 21 supervised flats. In addition, the property also includes retail units, a key facility to improving a home’s attractiveness to residents, and investors.

Our research shows that demand for residential care in this area will increase, but that there are also sufficient skilled professional carers to ensure the home runs smoothly. The home is always fully occupied and is run by an experienced operator. We’ve just signed a new long-term lease.

For a sustainable investment in the residential care sector, it requires expert insight, local knowledge and professional support to identify investment opportunities. Our team of specialists at PATRIZIA are dedicated to providing informed and considered advice to investors, as well as operators of care homes. It’s this combination that puts us in a unique position in the market.

Jan-Hendrik Jessen, head of fund management operated properties at PATRIZIA Immobilien AG