Strong fundamentals combined with an ageing demographic in the UK continue to make care homes a very attractive asset class, according to a new Savills report.
The Care Home Investment Market Update says that the long indexed incomes with either RPI or fixed uplifts make care homes an appealing investment for those struggling to find opportunities in mainstream markets.
Chris Wishart, director of Savills Healthcare team, said: “Over the last 18 months we have seen care homes achieve unprecedented yields with those let to annuity grade tenants and in excess of 30 years unexpired attracting interest levels of below 4%,
“We expect this trend to continue with the care home market being put under further pressure in the next three to five years due to an increase in the population and a limited amount of new homes coming out of the ground, which will ultimately drive prices higher and sharpen yields.”
Savills said care home yields had moved significantly over the last five years and were now in line with many other traditional commercial asset classes.
The Savills Prime Care Home Yield Index currently stands at 4.25% down from 4.75% in 2016.
The strong fundamentals are supported by high demand for good quality care homes, fuelled by the ageing demographic and more homes being closed than opened since 2011.
Savills said 9,000 beds were lost in 2016 compared with 6,000 being built.
Chris added: “We have seen care homes emerge into the investment area with interest coming from a variety of buyers, including REITs, institutions, pension funds and insurance companies seeking to diversify their portfolios.
“In addition, we expect the increase in activity from overseas investors, already witnessed in the mainstream markets, to become a reality in the healthcare sector with buyers from the US, Central Europe and Asia re-entering the market buoyed by the weakened Sterling.”
Savills highlighted the recent sale and leaseback of Gold Care Homes by US REIT, Omega Healthcare, as an example of overseas interest in the UK.
The real estate advisor said investment was expected to rise by 25% over the first half of 2017 following a drop in 2016 due to market uncertainty and a lack of opportunities.