Retirement homes – an investment in perspective
Over the last 15 years, investments in non-traditional types of commercial real estate in Europe have increased by an average of a quarter annually. One of such assets is the elderly care home: this is a good option to diversify a portfolio and get a steady income for several decades. In this market, there is not so much competition as compared to offices or retailers, but more and more investors believe in its prospects – largely due to demographic changes in the world.
Over 60 – every fourth, then every third
Population aging is a global trend characteristic of most developed countries. According to UN estimates, if today in the world the proportion of older people over 60 is 13%, then by 2050 it will grow to 25% (with the exception of Africa). Most older people live in Europe – they make up a quarter of the population in this region today. The number of people older than 80 will triple by 2050 from 137 million in 2017 to 425 million, and by 2100 it will reach 909 million.
By 2100, 3.2 billion people over 60 years old will live in the world Vlad Sargu / Unsplash
Long lease and high yield
Nursing homes are a type of property that can benefit most from such demographic changes. According to the Statista portal, if in 2013 every fifth investor estimated the investment potential of nursing homes as “very good”, then in 2017 every third expressed this opinion.
Depending on the set of services, a home for the elderly can be divided into three types: adapted housing, specialized complexes with services (with meals and domestic help) and nursing homes of the hospital type with full medical care.
A feature of nursing homes as objects for investment is a long term lease: as a rule, contracts with operators are signed for 15–25 years. Depending on the location, quality of the object and the term of the contract with the operator, the yield of nursing homes ranges from 5% to 6.5%.
Hospital-type nursing homes have a drawback: they are difficult to repurpose if the investor decides to change the designation of the anakul object.
Most active markets
According to Savills, in 2016, France, Germany, Great Britain, Finland, the Netherlands and Sweden became the leaders in terms of investments in nursing homes in Europe. On average, there are 46 places in nursing homes in Europe per 1,000 inhabitants over 65, and 70 in Belgium, Luxembourg and Sweden.
In Europe, investment in nursing homes in 2012 tripled – at the same time, investors began to seriously consider them as an alternative asset type joyce huis / Unsplash
According to forecasts of the UBS financial holding, the United States has the most favorable conditions for investing in the nursing home market. The seven most favorable markets also include Japan, Canada, France, Singapore, Germany and Qatar. At the same time, in Latin America this sector is only beginning to develop due to the small number of people over 80 years old.
What to look for when choosing an object?
Sophia Bulanova, Tranio Investment Consultant, advises choosing sites in major cities. “These nursing homes have higher liquidity,” she says. “If this object is not of medical type, then in the future, if necessary, it can be converted into a normal residential building or hotel.” For nursing homes with expensive medical equipment, technical double-diligence should be done carefully.
Another important factor when choosing an object is the presence of a rigid lease agreement with the operator. “A hard contract means that the operator will pay the rent throughout the entire rental period, regardless of how full the object is. We advise you to choose network operators that have at least 10 sites under management – then the probability is lower that the company goes bankrupt and stops paying the owner, ”explains Sofia Bulanova.