The Record Year for UK Healthcare Property Investment

The UK healthcare property market saw record levels of investment throughout 2020, with deals totalling £2.7 billion despite the Covid-19 pandemic. This figure is 55% higher than in 2019, as investors increasingly seek stable returns and a secure income despite the uncertainty of the pandemic.

According to Knight Frank, a London residential and commercial estate agent, a constant stream of investors is targeting UK healthcare. Interest has risen amongst investors in traditional sectors such as care homes and private hospitals, as well as in more assets such as mental health facilities and children’s services, including children’s homes, foster care facilities and schools.

The sector has received a surge of institutional capital, a solid selection of REITs (real estate investment trusts), and a rising level of overseas investors. Overseas capital has significantly increased, accounting for 72% of healthcare transaction volumes in 2020, markedly above the 41% share seen across the last five years.

The most substantial deals were mainly focused on the private hospital market, with North American REITs growing their presence in the UK. European entrants have also completed some significant deals in 2021. French operator Korian entered the UK elderly sector, and Belgian REIT Cofinimmo has been involved in assets in the Irish market, which has built confidence in the process overall, and served as a signal that overseas capital is getting ready to play an integral role in the sector throughout the coming year.

Some more high-profile healthcare property deals that are on the table include mental health services provider Elysium Healthcare (£900 million), children’s care and education services provider Keys Group (£250 million), £3 billion of mental health and learning disability providers, as well as £1 billion of broader healthcare property transactions. The Priory Group, England’s largest mental healthcare provider, was sold to private equity group Waterland for £1.1 billion at the beginning of 2021.

Despite the influx of new investments and global opportunity, the pandemic has presented the sector with unforeseen operational challenges, with hospitals, GP practices, and other focused healthcare facilities feeling the brunt of the infection control measures that have had to be implemented, which has led to a strain on private healthcare to a similar degree of that which the NHS has been subject to. The most concerning assets were surrounding elderly care homes, which have been a focal point in terms of protection and frontline healthcare protective measures, so this has taken a toll on investment volumes. The elderly care sector represented 18% of all healthcare property investment, compared to 39% over the last 5 years.

Due to the overwhelming need for healthcare over the past year, healthcare real estate has boomed and outperformed the rest of the commercial real estate sector, with returns in the sector holding strong at 6.3% in 2020. In comparison, the wider sector saw returns well below the long-term average, which is a more fitting representation of the pandemic overall. Healthcare is proving to be a major boon for investors, and with it being on the rise since 2016, it has seen the wider sector stagnate and fall. If there is anything certain in these times, it is that healthcare investment is only going to grow.