Doubling of Dutch Healthcare Real Estate Investments in 2022 Compared to 2016

Abstract

In 2016, I conducted an initial study around healthcare real estate in the Netherlands on behalf of the Association for developers & builders (NVB) to provide a picture of developments around healthcare real estate for investors. This resulted in an essay and an book contribution. Now six years later, it becomes curious how the healthcare real estate developments of the time have progressed to the present day. Before looking at the developments in 2022 compared to 2016, it is important to see how the healthcare real estate developments from 2009 through 2015 evolved where from 2009 only really shows an upward trend in real estate investments. This article consists of the 2016 study (Part I) and a 2023 update (Part II).

1. Introduction

1.1 Healthcare property in the Netherlands

The prospects for investing in healthcare real estate are positive and investments [1] will therefore increase. This is evident from the 2015 Healthcare Real Estate Barometer, among others. Dutch healthcare organizations have been responsible for their own real estate since 2012, and thus investing in care locations is still at the beginning of its development. This is different in other countries. There, it is common for different investors to invest in care and cure real estate. Foreign investors see opportunities when they look at the Dutch healthcare real estate market. A plus in that, for example, is that Dutch institutions, against the economic trend, have growing solvency and equity have.

The 2015 Healthcare Real Estate Barometer [2] includes a comparison with healthcare real estate investments in other countries included. Australia and the United Kingdom have a longer history in terms of healthcare real estate investments. The total return on investment in real estate is the highest (7.5%) in Australia over the 2007–2013 period. For healthcare real estate, that total return in Australia, for example, is higher (11.1%).

An important point is that within healthcare there are many differences. Take the difference between care and cure. Care currently still scores a lower return on real estate than cure. That is mainly caused by current developments within the General Act on Exceptional Medical Expenses (AWBZ) and the Long-Term Care Act (Wlz), as a result of which funded nursing homes are becoming vacant. In the United Kingdom [2], the care property portfolio has been reviewed to ensure that it fits well with the evolving demand for care and supply of care property which has also resulted in higher care property yields.

1.1.1 Robust business case

For further development and investment in healthcare real estate, the healthcare sector currently has currently has a limited choice of a number of Dutch banks. Developers, investors and construction companies [3, 4, 5, 6] are more interested in Dutch healthcare real estate, but are still relatively unfamiliar with it. Foreign investors do dare to investments based on their experiences outside the Netherlands. Healthcare institutions are increasingly taking the initiative for other forms of financing and investments and are looking for other forms of loan capital. An example of this is the new healthcare bond fund. Foreign investors could also be a party for this. We are mainly talking about long-term investors who are looking for stable investments with reasonable returns. Many providers are wondering how to interest investors in their real estate activities. Of importance is a robust business case [6]: investors are concerned with the future prospects of the entire healthcare organization. You have to be able to explain what the long-term plans of the organization as a whole are and how healthcare real estate plays a good and therefore flexible role in that fulfills.

1.1.2 Invest more and differentiate

In this part are the most recent developments in the field of healthcare real estate. This will help provide insight into developments and opportunities for developers, investors and construction companies. The prospects for investing in healthcare real estate in the Netherlands are positive and investments will therefore increase. Healthcare real estate will continue to professionalize with robust business cases from healthcare institutions. This will develop further by increasingly connecting to the further demand for care and the corresponding supply of real estate.

An attitude of investing more and differentiating more makes real estate flexible so that a good fit with healthy aging and hospitality, the underlying success factors of players in the healthcare (real estate) market [7].

1.2 Healthcare property in the Netherlands

What is going to change in healthcare real estate in the Netherlands:

• definition of healthcare real estate;

• intramural and extramural;

• scope of healthcare real estate;

• change in funding system;

• real estate references; and

• healthcare real estate as an investment.

1.2.1 Definition of healthcare real estate

There is no exact definition of healthcare real estate in the Netherlands. Care real estate as social real estate can be defined as “The specific characteristic of the social real estate relates to (a) a building-related communal activity and (b) the provision and facilitation of that need of stakeholders from a recognized social interest ([8]: p. 67).’ Care real estate is therefore real estate that is directly or indirectly related to healthcare services and makes a supporting contribution to a healthcare operation.

Healthcare real estate includes buildings with very diverse functions [9, 10] and characteristics such as health centers, clinics, residential care centers and hospitals. Because there are diverse buildings with different types of healthcare operations fall under the term healthcare real estate, different valuation methodologies are also common. The common factor between methods is that the (healthcare) operation that takes place in the real estate plays a role in determining the value and thus the investment. Because of this, there are investing similarities with other types of operating real estate such as vacation parks, hotels or other primary process driven organizations.

In the healthcare sector, a distinction is made between the cure and care sectors. Cure is focused on healing. The real estate that falls under this sector includes hospitals, primary and secondary care centers and (rehabilitation) clinics. Those in need of care come to this real estate for a temporary stay that contributes to healing or recovery from their illness. Care is focused on care. The real estate that falls under this sector aims to limit the disadvantages of diseases, disorders and limitations as much as possible. The real estate belonging to this sector include residential care centers for the elderly, mental health care and disability care. People in need of care live here for long periods to be cared for.

1.2.2 Intramural and extramural

Extramural care is a form of intensive home care for people with a care indication who are not admitted to an institution, the current care packages 1–4. The purpose of this care is to provide care to people living independently in such a way that moving to an intramural setting can be prevented or postponed. In the elderly care segment, the lighter care needs are included in the nursing home care category. For this group, the emphasis of the care demand is on sheltered living with assistance and care. Intramural care is health care that is provided during an uninterrupted stay of more than 24 h in a care institution such as a hospital, nursing home, nursing home or an institution for the mentally handicapped. The care can then consist of supervision, care or treatment. Included in this segment are the heavier care needs in the category of nursing home care, the so-called care packages 5–10, care demand of this target group is intensive care, guidance and nursing.

1.2.3 Size of healthcare real estate

The market value of Dutch healthcare real estate is ±60 billion euros. There are ±52 million m² defined as healthcare real estate. This makes the sector larger in terms of floor space than, for example, the total retail or office real estate in the Netherlands. There are approximately 34 million m² of healthcare real estate of the desired future size of 2000–100,000 m², according to the Economic Institute for Construction (EIB) [11]. Approximately 37% of the healthcare real estate falls outside this size range. These include small primary care and large hospitals. Of the size of the stock of healthcare real estate (Basic Records of Addresses and Buildings (BAG), from the Dutch municipalities and the Land Registry), about 22% is relatively new with a year of construction of 2000 or later. Based on the previous conditions segmented in the following overview (Figure 1).

Figure 1.

Healthcare real estate by segments, size range 2000-100,000 m [11].

Looking at the large cities (G4 and G32) we see that of the desired size class of healthcare real estate 45% (15,370 sqm) is in the big cities according to (Figure 2).

Figure 2.

Care real estate in large cities, size class 2000–100,000 m². Source: BAG, EIB in Elp 2015 in care real estate barometer 2015 [12].

1.2.4 Change in funding system

In recent years there have been significant changes in the Netherlands in the how healthcare institutions must fund their real estate. Until 2012, the capital costs (interest and repayment) were funded under the Admission of Care Institutions Act (WTZi) and therefore real estate was funded entirely by the government. The healthcare institution received on a post-calculation basis the actual costs incurred for housing. This structure was relatively risk-free for healthcare institutions. Since 2012, healthcare institutions become responsible for their own healthcare (real estate) costs. Instead of being reimbursed for the costs, they receive a fee per actual care production delivered, the so-called performance funding. This has ensured that care institutions bear the full economic risks of the real estate whether or not rented or other use. These system changes have also shifted the risks for maintenance, occupancy and the final value of the real estate to the healthcare institution. The transition between the former and the current funding structure of healthcare real estate takes place gradually until 2018.

1.2.5 Real estate references

Unlike the office, (social) housing or retail market, in the healthcare sector there are still not really publicly available real estate references. Many transactions that have taken place between housing corporations and healthcare institutions have not been public and/or are based on a social return that cannot always be expressed in euros. In addition, much real estate is also owned by the healthcare institutions themselves, so its valuation is not public. For several years now, a few parties have been mapping transactions and the first transparency is emerging within the sector. Incidentally, due to diverse functions, these properties are not always easy to compare.

1.2.6 Healthcare real estate as an investment

The development and investment in healthcare real estate [13] by market parties has gained in popularity in recent years. Recent examples are the Belgian real estate funds Aedifica and Cofinimmo. Investments by large investment funds in Dutch healthc`are real estate have increased in recent years from €100 million in 2013 to 338 million euros in 2015. This is partly because, until previously, there was little to no supply of available healthcare buildings was present on the market. After all, healthcare institutions could obtain cheap (and secured) financing from banks. In addition, housing corporations were lining up to co-develop and own the healthcare real estate. Now these developments have changed significantly and various development investment opportunities are becoming available to parties on the market. The increasing interest shown by investors, developers and construction companies can also be explained by the fact that (the properties of) rented healthcare real estate show interesting investment characteristics. If they are compared, for example, with leased offices, industrial premises or retail outlets, they can lead to an attractive diversification of the real estate portfolio for investors. Essential for every investor, developer and construction company is that there is a healthy business case under the healthcare operation and that the long-term rent can be raised in a healthy way. For investors, there are also advantages and disadvantages (Figure 3).

Figure 3.

Advantages and disadvantages of investing in healthcare real estate [14, 15, 16].

1.3 Trends and development

Trends and developments are:

• population composition is changing significantly;

• more private involvement in the Netherlands;

• healthcare real estate a proven investment category internationally;

• changing investment market for healthcare real estate; and

• large potential transaction volume.

1.3.1 Population composition is changing significantly

The composition of the population in the Netherlands will change in the coming decades. The number of elderly people will rapidly increase during that period. CBS indicates that the number of 65+ people will increase from 2.7 million in 2012 to 4.7 million in 2041. Until 2060 the number moves around about 4.7 million, see (Figure 3). In the coming years, first the share of 65–79-year-olds will rise sharply. From 2025, the group of 80+ year old will also increase sharply, the so-called double aging. In 2040, the Netherlands will reach the peak of the number of 65+ people. An estimated [17] 26% of the population will then be over 65. About 10% will be older than 80 at that time. In 2013, only about 4% of the population is older than 80. In the coming decades, the “gray pressure” will increase sharply. In 2012 this is about 27%, while this will be about 51% in 2040. This pressure indicates the ratio between the number of people over 65 and the potential labor force. It provides insight into the ratio of older people to the potential working portion of the population that must absorb the burden of aging. In 2012 there are still four people working for every elderly person. By 2040, this has decreased to two employed people for every person over 65. After 2040, the gray pressure remains stable until about 2060 (Figure 4).

Figure 4.

Number of millions of 65- (blush line) and 80+ people (green line) 1950-2012 and forecast number of 65- and 80+ people, 2013-2060 (source: CBS Bevolkingsstatistiek; CBS Bevolkingsprognose voor 2013-2060).

In the coming years, the demand for nursing home and nursing home care will develop differently start to develop differently than in the previous decade. Several developments can be identified, each affecting the total demand for care for the elderly in a different way. These developments are:

• The elimination of demand for nursing home capacity due to the introduction of separate living and care.

• The increasing demand for concepts of assisted living as a result of more frequent and longer independent living by the elderly.

• The increasing demand for nursing home care as a result of the increasing number of seniors with heavy care needs.

• The insured package will possibly be further limited in connection with the collective financing of care and the macroeconomic manageability of costs.

1.3.2 More private interference in the Netherlands

The government’s influence in the Netherlands is waning with the restructuring of long-term care. The allowance for housing for those in light care—the so-called care package 1 to 4—has been abolished. In addition, the government is making an appeal to society through the Participation Act. In Europe, historically large differences are visible between different countries and how long-term care is or is not regulated. In southern and eastern European countries, the role of the family in care is greater than in Northern Europe where the role the government is dominant. A combination of family and government is found more in Central European countries (see Figure 5). There are large differences between all these countries significant differences when looking at the percentage share of national income spent on long-term care. There is also more of a convergence in terms of a care system in which family and government will play an important role together.

Figure 5.

Long-term care responsibility by country and home care spending as % of GDP (source: SCP 2014, editing Syntrus Achmea Real Estate & Finance in Veuger et al. [2]. Bron: SCP 2014, editing Syntrus Achmea Real Estate & Finance in Veuger et al. [2]). [Familie is Family, Beide is Both and Overheid is Government].

The transition of care in the Netherlands means that there is less and less government involvement with the result that housing for those in need of light care is no longer funded by the government funding. This group must now provide for their own housing. Developments of new solutions to rent housing from investors in the immediate proximity to care facilities offer opportunities. General practitioners in primary care facilities a major role to relieve the more expensive second line. We increasingly see first and second-line facilities clustering in health centers. These can be attractive investment propositions for investors, developers and building entrepreneurs.

1.3.3 Healthcare real estate internationally a proven investment category

In the Netherlands, investments in healthcare real estate are limited compared to abroad.

Out of total invested assets, Syntrus Achmea Real Estate & Finance estimates that approximately 500 million euros in healthcare real estate is held by Dutch institutional investors. If we compare this with the total invested assets in real estate in the Netherlands of approximately 50 billion euros, then healthcare real estate is only 1% of that. When the United States, the two largest public healthcare real estate funds have a combined market of approximately $50 billion, with the total healthcare real estate market being as much as $1 trillion. The maturity of investing in healthcare real estate is also determined in part by the fact that Australia, for example, has already had a professional return series: the MSCI Healthcare index. A comparable index in Netherlands does not (yet) exist, although the market clearly indicates a need for one is. The potential for potential investment for the attractive healthcare real estate market and is, for example, larger in size than the entire retail market real estate in the Netherlands.

1.3.4 Large potential for transaction volumes

The development and investment market of healthcare real estate has received increasing attention since 2012. More national and international (institutional) investors are expressing their ambition to set up a fund for healthcare real estate or to conduct research in this market so that its transparency can be increased. Private investors are also showing increasing interest in this segment, and healthcare bonds are going to develop further in various forms. Looking at registered healthcare real estate investment transactions by DTZ Zadelhoff, for example, in 2013, the following picture emerges. In 2013 it recorded approximately 120 million euros in investment transactions and in 2014 this increased to approximately 180 million euros. These investment transactions concern only a small part of the investment volume in 2014 of approximately 10 billion euros. This shows that this development and investment category is growing rapidly.

The ambitions of various investors, and thus opportunities for developers and builders, are substantial given that over EUR 2.5 billion is available from investors to invest in healthcare real estate in the coming years. What is important here are a number of—non-exhaustive—preconditions because the healthcare real estate market is and will continue to be very dynamic.

Preconditions include:

• (new) construction and less than two years in operation;

• investment or a new lease, possibly in the form of a sale & leaseback construction;

• long-term lease, for example at least 10 years;

• alternative financial and functional use;

• a robust business case of the healthcare institution;

• relevant (healthcare) real estate location; and

• gross initial yield between 6.5% and 8.0%.

1.4 Investing

Investing issues are:

• sufficient real estate mass but not attractive (yet); and

• obsolete and profitable healthcare real estate such as: first-line care; second- and third-line care; residential care real estate; real estate with a care function; and private clinics and homes.

Research [11] shows that the Netherlands has sufficient real estate mass but that currently too much healthcare real estate is not attractive to invest in. Conditions have however become more attractive due to changes in the Netherlands’ healthcare policy and the user perspective: more people are aging longer. In addition to these positive developments, there are not yet transparent and reliable series of healthcare (real estate) returns for an asset-liability management (ALM) study: gaining insight into dependencies of the organization in relation to its liabilities and rights.

When we look at healthcare real estate investments in neighboring countries it appears that healthcare real estate carries little market risk [18] and has stable returns over the longer term. It is important to recognize that healthcare real estate has different and thus more specific risks and uncertainties than, for example, the office or retail market. Because the amount of publicly available real estate information is very limited, insights and thus transparency in the Dutch healthcare real estate market are (still) very limited.

The Economic Institute for the Building Industry (EIB), based on the available information available information on marketability, user characteristics and the previously distinguished segments positioning in a quadrant model (see Figure 6). In this model an attempt is made to position the distinguished segments. For each segment, an expected growth per year of the stock in that segment until 2030 is given [11]. The picture that emerges here is not an exact positioning but does provide a general of the developments regarding the (in)marketability and (un)profitability of the segments and the development directions of the segments. At object level, the (in)marketability and (un)profitability in the segments are more nuanced.

Figure 6.

Investment grade healthcare real estate matrix, growth rates by year to 2030 (Source: Elp 2015 in Care Real Estate Barometer 2015 [19]. Editing: Veuger 2023. Four quadrants are distinguished in this figure: Quadrant I: creditworthy institutions in current real estate = investment grade; Quadrant II: creditworthy institutions in current real estate = question mark; Quadrant III: unprofitable institutions in current properties = non-investment grade; Quadrant IV: unprofitable institutions in current real estate = question mark.

Looking at the investment grade of the healthcare real estate matrix, a number of development directions can be identified for certain segments until 2030 [20].

Real estate for primary care has sufficient mass in the attractive size range. There is some freedom to shape business operations. Smart combinations with other health care providers are possible. Cure is reluctantly left to the market, though. More market forces, and increasing prosperity, will benefit private clinics more. A significant portion of primary care real estate is outside the larger cities. This makes private financing more difficult. The primary care segment is expected to shift cautiously from question mark to investment grade.

Second- and third-line care tend to use monofunctional large buildings (hospitals). There is mass in them, but the number of individual properties is limited. Government influence is high. In the new healthcare system, capital costs in the coming years will be accommodated in tariffs through the normative housing component. Healthcare institutions will thus become risk-bearing for their real estate. Thus, real estate decisions will be made more businesslike. This would gently move the segment from non-investment grade to a question mark.

Residential care real estate is used for vulnerable care clients, such as those with dementia and disabled. Care must be available on demand. Residential care real estate is relatively function specific because of the specific design for this group (wider corridors, extra safety measures). In time, under pressure from the wishes of wealthier users there will probably be room for more own payments. Rationalization of investments will also apply to residential care real estate. The existing stock in particular is not investment grade. In time, a move to investment grade is foreseeable, certainly with regard to new construction because transformation is taken into account.

Real estate with a care function, mostly nursing homes, is struggling. Previously, for a large the so-called residential and accommodation component of the AWBZ for a large group of elderly people. Meanwhile, the least intensive indications have been abolished and in 2016 another group that will then no longer be entitled to a package including living and accommodation. Care homes that previously provided housing and care as a package are now seeing elderly people making a different housing choice. The existing real estate is not geared to this. The baseline situation thus fits into the heart of the quadrant model and with some growth driven by the aging population, this segment is expected to become more investment grade.

Private clinics and hospitals are attractive as an investment: smaller government influence, co-payments dominant, and favorable scale. In abroad this is also preferred. The outlook is favorable; high growth of both segments is credible. Increasing prosperity and developments towards more market forces result in high growth rates for private clinics and hospitals. Thus, private clinics and hospitals are eventually shifting from a question mark to investment grade.

1.5 Transnational volumes

Transnational volumes are:

• long-term overviews of returns are not there (yet);

• from 100 to 300 million in three years;

• upward trend in investments in healthcare real estate from 2010; and

• three quarters of investments in care-related real estate.

1.5.1 Long-term overviews

Long term overviews of transaction volumes and initial yields of healthcare real estate in the Netherlands are not (yet) available. However, this is developing more strongly in the Netherlands. If we look at investment volume in the Dutch healthcare real estate market and disregard transactions between healthcare institutions and housing corporations as well as the fact that not all transactions are always public and/or complete, we see that from 2013 to 2015 investment volume has tripled from around EUR 100 to EUR 300 million (see Figure 7).

Figure 7.

Investment volume 2009-2015 in Dutch healthcare real estate by market participants (y-axis in millions). Source: Syntrus Achmea Real Estate & Finance & CBRE (2016). Syntrus Achmea Real Estate & Finance & CBRE (2016).

1.6 Yields

Investment and development opportunities for healthcare real estate become apparent when compared to other real estate segments such as offices, retail, residential and logistics. A comparison of gross initial yields of these different real estate segments with healthcare real estate in 2015 indicates (Syntrus Achmea Real Estate & Finance & CBRE ([21], p. 14). This is based on top yields only. It is important to note that the bandwidth of initial yields can be very large) that the yields may look as follows compared to traditional segments (Figure 8).

Figure 8.

Gross initial yields traditional segments and healthcare properties [11].

These yields show that the different ranges of four healthcare real estate segments are similar and sometimes higher than those of offices, retail, residential and logistics. Transactions at the top of extramural real estate therefore appear to be comparable to returns of residential properties. In cure and care, returns are higher than those of traditional real estate segments.

1.6.1 Direct and indirect return on healthcare real estate interesting

The total return on real estate consists of two parts:

• the direct return: expresses net income as a percentage of value;

• the indirect return: expresses the change in value—corrected for (dis-)investments—as a percentage of the value.

In the following Figure 9 the total, direct and indirect returns for cure and care over the period 2003–2013 are juxtaposed. It shows that cure and care real estate show stable direct returns over this period. However, the total return on healthcare real estate over the last few years is negatively influenced by the negative indirect return from 2008 onward. One explanation for this is the many vacant nursing homes.

Figure 9.

Total, direct and indirect returns (BAR in %) Dutch Healthcare Real Estate Cure and Care 2003-2013 (source: Elp and Konings 2015). Blue line is total return; yellow line is direct return and brown line is indirect return.

It is now also interesting to look at a return picture of healthcare real estate compared to the IPD Dutch annual real estate index. Over the period 2003–2012, it appears that care and cure real estate returns follow the index. In 2013, it appears that the total return of care real estate is significantly lower than in previous years. One explanation for this is that this concerns a large part of the stock of traditional care homes where alternative use is very limited (Figure 10).

Figure 10.

Direct and total return (BAR in %) Dutch healthcare real estate care and cure compared to Dutch real estate index, 2003-2013 (Source: Elp, M. and P. Konings (2015). Blue line is total return; yellow line is direct return and brown line is indirect return.

1.6.2 Comparisons with other investments favorable

If we compare healthcare real estate returns with other real estate sectors, investments, stocks and bonds, we can conclude that healthcare real estate is interesting. However, we have to realize that the range of returns on healthcare real estate is limited for comparable statistics because the openness of data is limited, as are the transactions in healthcare real estate (Sharpe ratios are also shown in Van Elp and Konings [11].

The Netherlands does not (yet) have a separate index for returns on healthcare real estate like Australia and the UK do. In Australia, over the period 2007–2013, the total return on healthcare real estate exceeded the general Australian real estate index. In the UK this is not the case but the healthcare real estate segment is less volatile than real estate in general in the UK. The following overview (Figure 11) compares healthcare real estate in Australia, UK and the Netherlands of the average total return per year for all (healthcare) real estate.

Figure 11.

Direct and total return Dutch healthcare real estate care and cure compared to Dutch real estate index, 2003-2013. Source: Elp, M. and P. Konings [11].

1.6.3 Stable appeal

During the last few years, the healthcare real estate market is moving towards becoming a stable and mature investment market. More and more players are operating in this market with a number of issues in healthcare real estate creating appeal:

• Demographics and not economics are driving the healthcare sector making it less correlated with economic cycles and recessions.

• Long-term and sustainable partnerships with healthcare players. Building a differentiated property portfolio in which locations are geographically dispersed reduces risks.

• Alternative uses of properties located in a good environment within a local community gives the property more development potential when vacant.

• Care providers can enter into longer-term contracts and can provide the security to continue to provide care activities and be locally anchored over that term. This gives an investor security for a longer (rental) term and a lower risk of being faced with property that is too specific.

• Fixed, annually indexed rents that reduce inflation risk.

2. Healthcare real estate investments 2019–2022 in the Netherlands

If we follow the developments from 2016 [8] and see the result of hair 2022, a very sharp increase in investments in healthcare real estate can be seen. In 2016 the volume was 465 million euros and in 2022 1344 million euros [22], a more than doubling of the volume compared to 2016. In four consecutive years from 2019 to 2022, investments exceeded 1 billion euros and mainly concern care housing (88%, [22]) and primary and secondary care real estate. New construction orders remained stable (Figure 12).

Figure 12.

Healthcare real estate investments 2019-2022 in million euro’s [22].

2.1 Dominant institutional investors in the Netherlands

The largest market share (Healthcare Real Estate Market 2023) in transaction volume is achieved by institutional investor with a 71% share (Figure 13). They invested 85% more in 2022 than in 2021 [22]. The three most substantial investments by institutional investors in 2022 were:

• The LUXOR-I portfolio consisting of 32 private residential care complexes of Dagelijks Leven spread across the Netherlands.

• Syntrus Achmea acquired the portfolio on behalf of the Achmea Dutch Healthcare Property Fund from the international listed healthcare company Orpea. Orpea decided, due to financial circumstances, to sell part of the portfolio through a sale & lease back transaction [23].

• The acquisition of 144 inpatient care units and 149 care homes for the Bouwinvest Healthcare Fund in The Hague [24].

Figure 13.

Composition of healthcare real estate transaction volume by nationality of buyer 2022 [22]. Editing Veuger 2023.

2.2 Possible stabilization

After an explosive increase from 2016 through 2022, a number of factors are now visible that may stabilize investment in healthcare real estate. This is possible due to three developments (Figure 14) [22]:

Figure 14.

Composition transaction volumes by construction status 2022 (Capital Value 2023). Editing Veuger 2023.

1. Interest rate hike felt in second half of 2022: Dutch investors invested in opportunities created by rising interest rates on bank financing. As a result, investors became more dependent on outside capital. International investors showed signs of becoming less active in the healthcare real estate market in the second half of 2022, as did listed healthcare real estate investors due to low stock market levels. Due to possible uncertain market conditions, fewer new (institutional) investors may enter the healthcare real estate market in the coming period.

2. Decrease in transactions: looking at the stable transaction volume over 2016–2022, it does appear that the number of transactions decreased by 20% in the last two years and became most visible in the second half of 2022 [25, 26]: the fourth quarter of 2022 saw a total of 20 transactions compared to 40 in 2021 and 71 in 2020. The average investment per transaction did increase by an average of 10.9 million euros. In comparison, in 2020 this was still 8 million euros per transaction. These figures are heavily influenced by two trends, though: (a) in 2022, almost 90% of the number of transactions took place within a range of up to 20 million euros, collectively accounting for about half of the total transaction volume, and (b) in addition, there are several large portfolio transactions every year. In 2022, there were nine transactions larger than 30 million euros that collectively account for over 43% of the total transaction volume [22]. In addition, supply is stagnating (Real Estate Market 2022).

3. Less new construction: The Dutch Health Care Institute [27] indicates that there will be a 70% increase in acute nursing home admissions in 2022, in absolute numbers 4737 people. This necessary increase cannot (yet) be seen in the increase of new construction and/or transformation and shows a slight decrease at this time. In addition, the transaction volume shows only a 2% increase compared to 2021. The feasibility of new construction projects in healthcare real estate came under further pressure due to the confluence of several market developments: (a) construction costs that rose again in 2022 and (b) declining initial yields due to the rise in interest rates. With the announced rate decrease of the Normative Housing Component (NHC) [28], the pressure on housing revenues is increasing.

Kuipers, director of healthcare real estate Capital Value [22] argues that pushing ahead with new construction is essential right now: “Healthcare institutions are seeing their capacity decrease due to the postponement of new construction projects and staff shortages, while waiting lists continue to grow. New healthcare real estate and smart buildings offer an opportunity for implementing more efficiency in healthcare. These include changes in floor plans, hybrid buildings and new techniques in home automation. Sustainability is also becoming a major focus in the healthcare sector. This also applies to investors and corporations in acquisitions. There is therefore more and more common ground between care institutions and market parties to work together on a future-proof stock.”

3. Conclusions

1. During the last few years, the healthcare real estate market is moving towards becoming a stable and mature investment market. More players are operating in this market with a number of issues in healthcare real estate creating appeal: (1) demographics and not economics are driving the healthcare sector making it less correlated with economic cycles and recessions, (2) building a differentiated property portfolio in which locations are geographically dispersed reduces risks, (3) alternative uses of properties located in a good environment within a local community gives the property more development potential when vacant, (4) care providers can enter into longer-term contracts and can provide the security to continue to provide care activities and be locally anchored over that term and this gives an investor security for a longer (rental) term and a lower risk of being faced with property that is too specific and (d) fixed, annually indexed rents that reduce inflation risk.

2. Interest rate hike felt in second half of 2022. Due to possible uncertain market conditions, fewer new (institutional) investors may enter the healthcare real estate market in the coming period.

3. Decrease in transactions. In 2022, there were nine transactions larger than 30 million euros that collectively account for over 43% of the total transaction volume [22]. In addition, supply is stagnating (Real Estate Market 2022).

4. Less new construction. With the announced rate decrease of the Normative Housing Component (NHC) the pressure on housing revenues is increasing.