Driven by increased investor appetite, European care home investment volumes have excelled in 2016 reaching approximately €2.6 billion during the first half of the year; 60 per cent higher than the same period in 2015. With strong activity set to continue and a robust number of deals in the pipeline for the last quarter of 2016, we expect European full-year volumes to reach a record high of circa €5.5 billion, exceeding the 2015 figure of €3 billion.
This increased investor activity has had an inevitable downward pressure on prime care home yields across Europe, which currently range between 4.4 and 7.5 per cent, depending on country, location and quality of asset. We expect these prime yields to harden further over the next 12 months.
The surge in transaction levels over the last 12 months is a result of externalisation strategies from operators and the consolidation of large portfolios between active investors. The sector itself really emerged as an asset class in 2012 when we saw European investment volumes triple. In fact, the four-year annual average volume recorded prior to 2012 was €315 million, while the same figure for the four years post 2012 is €2.8 billion, which highlights the increasing demand for this type of asset
So why are care homes so popular with investors? The main factor is that they provide an opportunity to generate greater diversification while still avoiding fierce opposition for competitively priced traditional asset classes. In addition, the ability to track inevitable long-term trends in the sector, most notably demographic changes, is also an appealing aspect for investors. The ageing population in Europe, coupled with the profile of the ageing baby boomers, means that there is a sustained demand for good-quality healthcare facilities.
For example, by 2025, more than 20 per cent of Europeans will be 65 or over and the number of people aged 85 years or over is projected to increase from 14 million to 19 million by 2020, rising to 40 million by 2050. Based on analysis of the varying demographics across Europe, the total expenditure on healthcare across the Continent and existing provisions for residential long-term care, we predict that the top five countries for investors to consider moving forward are the Netherlands, Germany, Denmark, Finland and France.