Florian Glock
Karsten Jungk - Wüest&Partner
‘In just two years, the so-called ‘baby boomer’ generation will gradually come into retirement age so, demographically, there will be an extraordinarily high demand for new care facilities by 2050,’ said Karsten Jungk, managing director and partner at Wüest Partner Germany.
The need for care homes in Germany is set to rocket in two years’ time as ‘baby boomers’ gear up for retirement, according to real estate consultancy Wüest Partner Deutschland’s ‘Care Home Atlas 2018’, published this month.
‘In just two years, the so-called ‘baby boomer’ generation will gradually come into retirement age so, demographically, there will be an extraordinarily high demand for new care facilities by 2050,’ said Karsten Jungk, managing director and partner at Wüest Partner Germany.
The study analyzes the care home market and predicts the future need for care places and nursing homes for all 402 German districts and independent cities before 2035.
According to the study, the number of people requiring care rose by 22.3% between 2009 and 2015, to around 2.9m. At the federal state level, this figure rose most in the east of the country, notably in Baden-Württemberg (33.4%), Brandenburg (30.1%) and Mecklenburg-Vorpommern (28.8%).
Wüest Partner Deutschland is forecasting that around 230,000 new inpatient care places will be needed in Germany by 2035. Most of the additional care places over the next 20 years will be needed in Berlin (around 10,400), Hamburg (around 3,600) and the districts of Hanover (around 3,200) and the Rhein-Sieg district (around 2,100).
Unsurprisingly, investors are chomping at the bit to grab a slice of the lucrative action: the deal volume for the German care and retirement homessoared by 137% y-o-y at the end of the first nine months of 2018 to €1.75b, according to CBRE.
‘By the end of the third quarter, it had already become clear that the full year 2018 will mark the second largest transaction volume in the German care home market,’ said Dirk Richolt, head of real estate finance at CBRE Germany. ‘A transaction volume of between €2b and €2.5b is possible for the full year,’ he added.
While the market is dominated by buyers who are desperately seeking investment opportunities and launching a stream of new funds with substantial volumes, there are hardly any portfolio holders with plans to sell or operators considering sales-and-lease backs in view of the low interest rate level and IFRS lease accounting, according to CBRE.
Portfolio sales dominate
So far this year, portfolio deals have accounted for 75% of the market, up by 31% y-on-y, according to CBRE. REITs were the most active buyers, at 65%, followed by insurance companies and pension funds with 8%. Asset and fund managers, closed-ended funds, developers and corporates accounted for around 5%, respectively.
In June, French portfolio management company Primonial REIM acquired €800m of German healthcare assets, in the biggest healthcare deal of the year. The company acquired a 50% stake in a German real estate portfolio managed by Alabama-based healthcare REIT Medical Properties Trust (MPT) for institutional investors in Germany. The portfolio comprised 71 properties with a combined total value in excess of €1.63b. MPT has retained a 50% interest in the portfolio and one of its affiliates will continue to manage the facilities.
Primonial is betting big on healthcare, its deputy CEO of real estate, Laurent Fléchet, told REFIRE earlier this year: ‘Our goal is to invest between €1.5b and €2b in healthcare assets in Europe per year, in markets such as Germany, France, Italy and Ireland,’ he said. ‘The healthcare market is already pretty mature in France and has moved a lot in Germany in the past two years. We think we’ll see more consolidation in the sector going forward.’
Primonial has also been building a string of European alliances in order to deepen its European footprint. Last year, it set up the ‘European Social Infrastructure No.1’ fund with Luxembourg-based fund manager AviaRent Capital Management, with a view to establishing a large social infrastructure vehicle. The aim is to grow the fund to up to €1b within the next two to two and a half years, according to Mathias Giebken, CFO and managing partner at AviaRent. The fund has an annual target return of between 7% and 9%.
Other investors are also jumping on the bandwagon. In June, listed Belgian real estate company, Cofinimmo, acquired 17 nursing and care homes in Germany comprising 1,500 beds for €172m from a joint venture belonging to European private equity group, Revcap. All 17 assets are let to German operator Stella Vitalis, with whom Cofinimmo has signed leases for a fixed 30-year period.
And as interest rises, yields are tightening. ‘In the current year, prime yields have fallen below the 5% mark for the first time ever,’ said Tim Schulte, associate director Valuation Advisory Services at CBRE. ‘This trend is likely to persist somewhat but, as operator models apply to care home properties, the level of prime yields generated by office and retail real estate will not be achieved,’ he warned. (ssk)
