Healthcare real estate expands in Europe

In Europe, the healthcare sector has on average accounted for 3% of total investment volume since 2016, compared to less than 1% in 2007. It is more defensive than other cyclical sectors and contributes to a good portfolio diversification for investors. In recent years it has been seen as more defensive, through the indexation of leases over long periods and high occupancy rates. Healthcare is at a crossroad, as some operators’ business models are vulnerable to rising ancillary costs and age-related structural changes. As a result, some investments fell more in value, while others showed greater resilience. However, social engagement and investors’ ability to provide a suitable offering will continue to ensure sustainable returns. 

Demographic change is impacting the typology of demand in the healthcare sector. According to the United Nations, a quarter of the people in the EU will be aged over 65 by 2050. In the densely populated countries of Germany, France, Spain and Italy, where 57% of the EU population lives, the proportion of people aged over 65 will rise to as high as 60% as these countries have lower birth rates and higher life expectancies. This trend is even more significant amongst the over-80 age group: by 2050, they will account for 14% of the total population in Italy, almost 12% in Germany and 11% in France and Spain. There are country-specific differences in terms of risk factors, diseases and mental problems (such as dementia). This also leads to different care needs and therefore a wide range of real estate products and services is necessary to meet these requirements.

Swiss Life Asset Managers is responding to this demographic change and has added other products, such as residential facilities for older people, to its offering of traditional nursing home models. 

In many cases, digital solutions improve productivity and thus support care staff. The use of digital games and a wide range of activities can stimulate residents' cognitive and social skills. Good knowledge of the MedTech ecosystem in Europe is therefore essential in order to find the right cultural solutions for both patients and care staff. In future, it will be possible to use artificial intelligence (AI) to develop tailor-made prevention concepts for every patient.

Both the quality and benefits of care in terms of efficacy, safety and patient well-being can be monitored and assessed using digital solutions (medical surveillance, drug control, appropriate care, medical records). Such innovations will allow care staff to focus more on psychosocial and complex patient needs. 

Healthcare and long-term care expenditures and financing vary greatly from one European country to another: those costs represent around 9.0% of GDP in Italy, 12.7% in Germany, 12.1% in France, 11.3% in the UK, and 10.4% in Switzerland and Spain. There are also big differences in the long-term care places: in Germany, the figure is around 54 per 1000 inhabitants, in France 48, in Spain 44, in Italy 22 and in Switzerland 62. In Germany, over 9% of 80-year-olds now live in long-term care facilities, compared to 15% in Switzerland and 6% in Spain¹. These differences are a result of a combination of different pension systems, living standards and regulations.

It is essential to analyse these structural factors to understand the models and ultimately secure long-term returns. Our country-specific approach to selecting products, infrastructure and operators takes account of all these structural factors, which have different elasticities per submarket.

In recent years, competition in the healthcare sector has intensified: large operators have spread rapidly in key markets, while emerging outsiders have come forward with new business models. Swiss Life Asset Managers has always assessed each case on an individual basis and on a local level, as the financial and medico-social factors in the various markets differ. By not focusing our pan-European investment strategy on one particular model, we avoid concentration risks. Instead, we prefer sustainable operating models for all parties involved. The choice of operator is crucial for meeting the demand for small and large units across the entire healthcare sector.

In the current context, operators and investors are thinking and working closely together to improve the welfare of all stakeholders. Operators are expected to be transparent and provide information to all parties involved, including families. This transparency strengthens mutual trust and minimises reputational risks at the same time. Particularly in the health sector, with its strict regulations, which can have a significant impact on operations, transparency also facilitates the establishment of meaningful, long-term partnerships.

Buildings must adapt to the people who live in them, not the other way round. Such intelligent and flexible real estate must be a place where patients and care staff feel comfortable and can lead as self-determined a life as possible. Faced with a scarcity of resources and employment laws, care providers need to develop new management and planning methods. It is also important that the buildings are anchored in their environment, which means that residents, operators and investors should share the same goal of living, managing and holding buildings sustainably and working towards minimising their carbon footprint. Labels, appropriate KPIs and other digital property technologies such as proptech should enable all stakeholders to closely track the development of the building on its path to more sustainability.

Swiss Life Asset Managers works closely with all its partners to support innovative solutions, enhance people’s well-being in old age and foster social responsibility, all while ensuring an optimal performance – with an understanding of the operational business beyond pure real estate. 

¹ OECD data