Investment into healthcare property across the UK is forecast to rebound in 2024 following a sharp drop last year, according to Knight Frank.
The agent’s Healthcare Capital Markets 2024 report found a total of £1.2bn was invested into healthcare property in 2023, just shy of a half of the £2.4bn invested into the sector a year before. The move comes in line with other real estate sectors which were affected by unfavourable asset pricing and market sentiment.
Knight Frank has predicted that investment in the sector will rebound this year, with monetary policy expected to ease in the second half of 2024 alongside growing investor demand for secure long-term income.
The most recent analysis from the agent shows that the weighted average unexpired lease term across healthcare assets is 25-30 years, with leases indexed to inflation.
The figures also show that average annualised returns reached 4.4% in 2023, up from 3.5% in 2022.
In addition, demand in the UK healthcare sector has been driven by the increase in the UK’s over-85 population, which is set to rise to 3.7m by 2050 from 1.7m.
As a result, a survey of global investors, undertaken as part of Knight Frank’s “Wealth Report”, found that 13.3% of investors favour the healthcare sector, second only to the living sectors, which was preferred by 13.8% of those surveyed.
Julian Evans, global head of healthcare at Knight Frank, said: “There continues to be a ‘flight to safety’ in real estate, with investors seeking secure long-term income underpinned by strong supply-demand dynamics.
“Changing demographics allied with a shortage of modern, ESG-compliant healthcare facilities and long inflation-indexed leases presents an undeniable case for healthcare.”
Ryan Richards, associate for healthcare at Knight Frank, said: “The cost of debt contributed to a drop-off in larger portfolio deals in 2023, with volumes driven by smaller, single asset transactions.”
According to Knight Frank’s data, 48% of transactions in 2023 were single asset deals, compared with 28% in 2022, with overseas buyers less active, accounting for 25% of volumes.
Richards added: “This is starting to change in 2024 as pricing stabilises with REITs and institutional buyers returning to the sector amid continued uncertainty around long-term demand for traditional core asset classes such as retail and offices.”
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