Allegra Care
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Europe’s senior living and care homes sector registered a record level of investment in the first half of 2021, with €4 billion of deals across both established and maturing markets in the region.

Purchases made by a growing range of buyers – including public and private real estate investment trusts, equity funds, pension funds, investment managers, financial institutions and developers – amounted to 38% above the five-year, first-half average.

This follows a very strong performance throughout the pandemic, where €7.5 billion of transactions were completed last year – a mere 4% dip on 2019 levels. 

Investors are buying assets in the UK and Germany, which accounted for 54% of all deals in the past 12 months. But they are looking further afield, too, with Sweden, Italy and Spain all fast becoming destinations for capital allocated to the sector.

All of these markets are taking an increasing share of the overall deal volume compared to their five-year averages, as investors can see the chronic supply and demand imbalance and the potential for long-term secured rental income streams that these assets provide. In addition, there are operating platforms that are looking to take market share and grow on a pan-European basis, but need a capital partner to come in alongside them.

Marcus Roberts, head of Europe, operational capital markets at estate agent Savills, said that the generational shift in Europe, which will mean that by 2050 the over 80s will account for 11% of the population (up from 6% today), will impact all countries and continue to put pressure on an already fragmented and non-institutionalised sector.

Roberts said: “The timing of this generational shift is uneven across Europe. The countries likely to be affected first are Italy, Germany and Portugal, but all European countries will eventually see the impact of this trend, leading to increased demand for senior living and care homes.”

Savills said that care homes have accounted for 76% of senior housing investments in the past five years, with volumes fuelled by M&A activity and large portfolio deals. By contrast, senior living is more of an emerging sector, often developed through forward-funding deals and joint venture partnerships.

However, Caryn Donahue, head of senior housing transactions, operational capital markets at Savills said: “We predict that, based on the large volume of deals and projects currently in the pipeline, with a broad range of new and existing investors, annual investment into the senior housing sector will reach a new high in 2021.”

Prime net senior housing yields range between 3.3% (with a lease) and 5.75% for managed investment properties and prime net care home yields range between 3.85% (with a lease) and 6%, depending on the location and quality of assets. Growing investor interest for the sector has put downward pressure on prime yields over the past six months – 14 basis points for senior housing and –17 basis points for care homes.

Lydia Brissy, European research director, Savills, said that further yield compression is to be expected in the next 12 months. “We anticipate investor interest in the sector will keep on growing and we also expect to see increased competition from US investors,” she added.

Date published: September 23, 2021

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