PRIMARY CARE


Primary care buildings are the places where more than 90% of patient contact in the NHS happens and with a growing and ageing UK population, buildings in which patients receive their care are now under unprecedented strain. In its 70th year, the NHS is now expected to accommodate more staff, a larger range of healthcare services and meet the demands for access twelve hours a day, seven days a week.


The primary care estate has historically faced under investment, with approximately 50% of the 8,000 GP surgeries in England and Wales now considered by medical professionals to be unfit for purpose. The Government announced in its 2017 Autumn Budget new additional funding of £6.3 billion for frontline NHS services and upgrades to buildings and facilities in England, which is welcomed. These additional resources may in time lead to increased development activity and the modernisation of existing primary care premises, which is essential if the NHS is to reduce the increasing pressures on hospitals.


Following the Sir Robert Naylor report on the NHS estate published in March 2017, the delivery of the NHS Five Year Forward View policy and the 44 ‘footprint’ Sustainability Transformation Plans (“STPs”), the importance of improving the quality of the physical infrastructure for primary care has been explicitly recognised as being part of the solution to broader NHS challenges.


In their response, the Government largely accepted the recommendations and also highlighted the need for private capital to play a role in funding the investment that will be required, in addition to how the NHS will be able to supplement public capital with other sources of finance from the private sector.


The response also confirms that the use of private finance has been particularly effective as a source of investment and innovation in primary and community care in the past and will still be used in the future where it represents good value for money.


Despite the continued volatility within the economic and political environment and a prolonged era of low interest rates, there continues to be an unrelenting search for income yield across most sectors. Primary healthcare, with its strong fundamental characteristics and government-backed income, has become a firmly established asset class for institutional capital, demonstrating consistently attractive returns, with a benchmark ten year track record of 9.4% per annum total return (to Dec 2017).


Over that same period, UK yields have tightened with prime yields now around 4.25 - 4.75% as competition for assets remains fierce. Looking ahead, we expect yields to remains at these new levels given the lack of supply and new development.


There are also signs of rents beginning to increase on new schemes being developed, as a direct consequence of rising land values and higher build costs, though generally rents continue to face a prolonged period of lower than inflation growth.


Notwithstanding some of the challenges to the market, further yield compression throughout the year has reinforced the attractiveness of this asset class which has consistently demonstrated resilience with strong investor appetite for good quality stock underpinned by secure, long-term, stable income streams.


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HEALTHCARE MARKET REVIEW 2018


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