The Brexit debate can sometimes become an insular discussion about the UK economy, which seems to take little notice of the wider global economic context in which Britain sits. But looking at the horizon a different picture can emerge, especially when considering healthcare investment assets. The fundamentals supporting healthcare properties remain: an aging population requiring care services and Government-backed income supporting investment covenant strength.
Investment into the healthcare market continues to be a success with care homes offering fixed review uplifts and unexpired leases in excess of 30 years achieving yields of approximately 4.5 per cent. Long-term income with either Retail Price Index-linked (RPI) or fixed uplifts is an attractive proposition to many investors who are struggling to find similar opportunities in mainstream markets. Savills Healthcare has recently sold a care home in Kingston to LaSalle Investment Management, who find the benefit of a 25-year lease with RPI reviews, strong tenant covenant and high underlying value an attractive investment.
The primary care market has also strengthened yet again in the last six to 12 months, with Assura and PHP both increasing their rent roll and institutional investors seeing the strong benefits of an investment sector where the Government is providing the long-term backing of income in public health buildings. Yields have been achieved below 4 per cent on particular assets which have long income at fixed uplifts or are in Central London locations.
Furthermore, an income strip in Manchester let to NHS Property Services for a term of 30 years has recently been sold for a circa 3.75 per cent net initial yield.
One of the other reasons the market is performing well is that real estate investment trusts, institutions, pension funds and insurance companies are seeking to diversify their portfolios and there are limited opportunities to secure long-term income in the main commercial property markets.
Institutional investors and annuity funds still have a weight of money that they need to place against long dated income, typically with RPI reviews. Healthcare assets that provide such opportunities have therefore been seen as an attractive investment class.
Following the Brexit vote, healthcare has also been perceived as a ‘safe haven’ by some investors, with the quasi-Government backed income they provide offering an appealing proposition in uncertain times against some of the strongly priced commercial investment markets. Savills foresees increased supply of oversees investors from the US, central Europe and Asian markets, re-entering with the Pound being relatively weak against the Dollar and Euro.
The dynamics and benefits of the healthcare market make this investment class a very attractive proposition with strong returns.