By Debbie le Quesne

Care sector investment: Big really is beautiful

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Big is beautiful, or so the saying goes. Looking at the research from care industry investment gurus Frank Knight, healthcare is now considered a core property asset attracting monies from the UK and overseas.

According to the FK bulletin “appetite for care homes in largely local authority areas is improving” with investors increasingly considering this addition for portfolios.

Let me quote: “Investors are targeting a distinct range of properties based on asset size. Typically, the Asia-Pacific funds and US REITs are seeking large lot-sizes, such as hospitals and care home portfolios, priced between £100m and £1bn, while UK and Middle Eastern institutions are targeting care homes and surgeries between £25m and £250m.

“Forward funded pre-let agreements have been prominent among the specialist Healthcare funds such as MedicX, with lot sizes typically between £5m and £10m.”

Indeed, millions of pounds of investment material seem to be required. But it’s the millions values that are getting the attention and most of our smaller residential care settings are being left out in the cold, attracting little or no fiscal lifts.

With total returns of 5.6% in 2013, healthcare underperformed All Property (10.7%), reflecting the strong revival of investor interest for core property sectors (i.e. Retail, Industrial, Offices).

However, Healthcare property continues to outperform the wider UK commercial property market over the longer term, recording average annual total returns of 5.5% p.a. between 2007 and 2013, compared with only 1.5% p.a. for All UK Property, according to figures in the FK report.

FK adds that the care home sector is also a growing part of the market with the rise in user demand for elderly care a key driver for .

Let me quote some more: “The key trends which will impact the sector in the future include not only the expansion of the elderly population (the number of over-85s in the UK will increase by 85% by 2030, according to forecasts from Experian), but also changes in health and dependency levels of the very elderly. This, and the fact that up to 80% of the UK’s care home stock is arguably below ‘institutional’ quality, also provides a clear case for investment in future-proofed care facilities.”

There’s a common thread emerging for all of these investor opportunities and it involves larger than normal businesses – essentially, corporates. Think big! Very big!

I’m heartened that the care property forecast remains strong and although negative Press has clearly eroded the confidence of the public, according to the report, it “is not expected to dent investor enthusiasm for prime healthcare investments.”

It stands to reason that increased investor appetite for bigger fish should up values of smaller operations. Sadly, however, I don’t think this is the case. Investors reading the FK report should be aware that the local authority market in the West Midlands presents steep fiscal challenges as many homes are just too small to sustain quality care services at local authority rates.



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