Although transaction volumes this year look unlikely to match 2017’s all-time high, investors have so far this year poured more money into the medical sector than in the whole of 2015 and 2016 combined.
The trend continues to be the search for high quality assets with a high proportion of private fees and as the weight of money chasing a limited pool of sellers persists, yields continue to be very strong with 4% to 5.5% quoted regularly. Some notable transactions include Target Healthcare REIT’s purchase of two care homes in Cirencester and Camberley for a combined £37m while Homes England purchased two sites with planning permission for 326 beds in Cambridge and Peterborough for £20m. In addition, MedicX Fund Ltd purchased 12 primary care centres across Northern England for £64m at 4.4% NIY.
Overseas investors have been less active in the market so far this year while Real Estate Investment Trust companies are the main players.
At 11.3%, double digit total returns growth continued in the 12 months to Q2 2018, driven by both income return (+5.6% y/y) and capital growth (+5.4% y/y). Healthcare easily outperformed retail (4.5% y/y) and offices (7.4%) and total returns were higher than for all property combined (9.3% y/y).
Equivalent yields continue to harden and at 5.26%, are lower than any of the traditional commercial property sectors, highlighting increased investor interest in this alternative sector.
The UK’s ageing population will result in increased demand for care homes, with forecasts from consultancy Oxford Economics suggesting that the share of the UK’s population aged 65 and over will have increased from 18.4% to 22.4% between 2018 and 2031, accounting for an additional 3.7 million people at or above the retirement age. With demand likely to increase over the coming years and stock in short supply, yields are likely to remain low for some time.
Walter Boettcher Director of Research & Forecasting
COLLIERS INTERNATIONAL
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