Driven by appealing return/risk conditions, and the secure cash flows available through fixed and long-term leases, the European healthcare real estate sector saw a record €5.8bn of M&A transactions in 2015, an increase of 40% on 2014. Sustained by the development strategies of key healthcare operators, the upwards trend looks set to continue with investment volumes expected to exceed €6bn this year.
The market is being driven by a number of key trends which are increasing the need for patient management and elderly care:
- An ageing population and increasing overall life expectancy. By 2050 it is forecast that the number of people over 80 will double in OECD countries;
- Increasing numbers of people suffering from chronic illnesses such as diabetes, obesity and cardiovascular disease;
- Changing family structures driving an increasing need for formal elderly support systems; and
- Healthcare improvements are driving both higher quality outcomes and shorter lengths of stay in hospital. There is an increasing shift from inpatient to outpatient care with patients staying in purpose-built facilities at less cost.
Average patient fees range from €3,000 to €4,500 per month and are funded by either statutory health insurance, care allowances from local authorities, private health or long-term care insurance, or out-of-pocket payments.
Public funding of healthcare remains dominant, but the share of private funding has grown fast in recent years due to budgetary constraints, with more authorities reducing or limiting payment increases to below-inflation and encouraging the elderly to stay in their own homes for longer.
However, the share of working people financing the healthcare system is expected to decrease, which will constrain public healthcare budgets further and drive providers to provide more efficient services at lower cost.
EU countries have approximately 2.7 million beds in health institutions, representing only 5.3 beds per 1,000 inhabitants.
The large gap between current demand and supply has created room for new entrants and led existing operators to expand. In particular, the prolonged economic downturn has led both the public and not-for-profit sectors to limit investment in facilities, leaving room for the private sector to expand its footprint to meet growing demand.