Office buildings and residential properties have traditionally far outshone welfare properties. This approach is changing among far-sighted investors, however, because demographics and increasing professional and private mobility are prompting demand for inpatient nursing care to rise, as fewer and fewer families can provide home care.
“2017 was the third strongest year for Germany’s nursing-care-property market on record”, explained Dr. Jan Linsin, Head of Research at CBRE. While it is true that nursing-care properties accounted for only 1.8% of the overall volume of commercial property transactions, the number of individual transactions is indicative of above-average investment activity. Of this, a disproportionate 64% was attributable to foreign investors, who apparently appreciate the outlook for growth and the reliability of Germany’s nursing-care market.
Strong demand is putting pressure on initial net returns: according to CBRE, the initial net return on first-class nursing-care properties dropped from 6.25% at the end of 2015 to 5.5% at the close of 2016 and further to 5.0% at the end of 2017. There are simply not enough adequate assets: “Some operators are more interested in buying properties back than they are in entering into new sale-and-lease-back transactions. In addition, as Linsin explained, inadequate new construction is generating insufficient supply”.
Decisive factor: operator competence
How are such first-class properties different from the rest? Apart from the customary criteria of location (buyers prefer to acquire socially oriented properties in locations that cater to residents’ purchasing power, are close to centers and meet an existing demand) and structural quality, the deciding factor is operator competence. That is why acquisition profiles, such as those of Corpus Sireo and INP Holding, regularly call for reputable operators with many years of management experience. Long-term leases are a must because they make the envisioned advantage of investing in nursing-care properties possible: many years of stable cash flow.
Flexible design makes nursing-care properties future-proof
Complying with the relevant legal requirements of the particular state, for example regarding the relative number of single rooms, is absolutely imperative. Choosing a flexible architecture that offers options for adaptation assures the future of a nursing-care property. Linsin predicts, “The market for nursing-care facilities will continue to be highly dynamic in 2018 and beyond.”