Healthcare properties are one of the fastest growing areas in the enduringly attractive real estate sector, not least due to the rise of the silver generation. They offer great diversity – from nursing homes to medical practices – enabling strong diversification and attractive returns for long-term investments.
Since the start of the Covid-19 crisis, the healthcare sector has posted above average performance on the equity markets, clearly outperforming commercial properties within the real estate sector. This has led to a sustained growth trend as alternative investment opportunities have been in demand since the financial crisis.
Nursing home in Aranjuez, near Madrid, Spain
Source: Swiss Life Asset Managers
Varying long-term trends are supporting the high demand for healthcare properties. The growing share of the silver generation (70+) in society, a very diverse group in itself, is particularly significant in this regard. At the same time, their needs are constantly changing as life expectancy increases. With generally long-term leases, this demographic group secures long-term, reliable cash flow. Moreover, the importance of healthcare investments to institutional investors is increasing in line with the ageing population.
Various advantages of healthcare properties
Healthcare properties have lower asset allocation correlations than other commercial properties such as offices and logistics premises. The growing, now mature healthcare sector thus offers good diversification opportunities. Investors can choose from nursing homes, rehabilitation clinics, hospitals, outpatient structures and medical practices as well as life science facilities. This allows investors to choose between a range of profit sources and models. As a result, healthcare properties are indispensable to self-determined risk and portfolio management.
Germany, France, Italy and Spain have the largest silver generations in Europe: according to Oxford Economics (OE), a total of around 40 million senior citizens were living in these four countries in 2020. According to the OECD, the number of nursing beds per 1000 inhabitants is as follows:
- Germany: 54
- France: 50
- Spain: 44
- Italy: 18
Oxford Economics forecasts strong growth in the silver generation up to 2035:
- by 35% in Spain
- by 34% in France
- by 30% in Germany
- by 24% in Italy
This shows that the real estate sector will have to provide new offerings in future to meet higher demand with growing needs.
Requirements for future healthcare concepts
Each generation is different from the previous ones. The silver generation of tomorrow will also have different needs and demands to today’s 70+ generation. At the same time, the environment, society and healthcare services are changing. Combinations of new healthcare formats, such as assisted independent living and memory management, offer good prospects of meeting the expectations of seniors and their families in the future, while also enabling self-determination in old age.
An integration of changing requirements into healthcare concepts and developments benefits all parties involved. This will create more convenience and security, while at the same time promoting digitalisation and medical technology in services that will drive innovation in this area.
This should improve patient well-being in the long term, while also contributing to lower public healthcare costs. Investing in the European healthcare sector is attractive not only for its stable returns, but also as part of a responsible investment strategy.
First published in Insights March 2021
Author: Beatrice Guedj, Head of Research & Innovation, Swiss Life Asset Managers, France