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UK Healthcare Property Investment Had A Record Year


The UK healthcare property market saw record investment volumes in 2020, with deals totalling £2.7B despite the Covid-19 pandemic, 55% higher than in 2019, as investors increasingly seek stable returns and long-term secure income.

An increasingly broad church of investors is targeting UK healthcare, said Knight Frank, which compiled the figures. Interest has surged from investors in the traditional sectors such as care homes and private hospitals as well as from more specialist assets and providers such as mental health, learning disability and children’s services including children’s homes, foster care and schools.

The sector has seen a rising weight of institutional capital, a strengthening selection of REITs and a growing level of overseas investors. Overseas capital has significantly increased, accounting for 72% of healthcare transaction volumes in 2020, markedly above the 41% share seen across the last five years.

The most significant deals were focused on the private hospital market, with North American REITs expanding their presence in the UK. European entrants have also been involved in some hugely significant deals already in 2021. French operator Korian made its entry into the UK elderly sector and Belgian REIT Cofinimmo acquired assets in the Irish market. Both transactions restored confidence and signal overseas capital is likely to play a critical role in the sector in 2021 and beyond, Knight Frank said.

And there is more to come, according to Knight Frank. High-profile healthcare property deals that are on the market and in the pipeline include mental health services provider Elysium Healthcare (£900M), children’s care and education services provider Keys Group (£250M) in addition to another £3B of specialist (mental health, learning disability) providers and £1B of broader healthcare property transactions. England’s largest mental healthcare provider, The Priory Group, was sold to private equity group Waterland for £1.1B at the start of 2021.

Despite healthy investment flows, the pandemic has posed an unprecedented operational challenge for the sector, with hospitals, care homes, GP practices and other specialist healthcare facilities adopting stringent infection control measures, often at a cost, and private sector workforces being stretched in many of the same ways as the NHS. The greatest concerns were understandably focused on the elderly care homes, which impacted investment volumes. The elderly care sector represented 18% of all healthcare property investment, compared to 39% across the last five years.

The strong fundamentals driving the need for healthcare real estate meant that the healthcare property sector outperformed the rest of the commercial real estate sector, with returns in the sector holding strong at 6.3% in 2020, whilst the wider sector saw returns below the long-term average, Knight Frank said. With a growing pool of investors and a diverse range of different asset types, healthcare transaction volumes have increased year-on-year since 2016 in contrast to deal volumes in the wider commercial real estate market, which have stagnated and fallen in recent years.