Institutional investor appetite to deploy capital into real estate strategies within healthcare has increased over the past couple of months. Real estate assets within the sector are increasingly attractive due to strong demographics, secure income and limited volatility compared with the economic cycle.
The global population is currently the oldest it has ever been and this change in demographics looks set to continue. It is anticipated that by 2060, 30 percent of people will be aged 65 or older. Aging populations will inevitably see an increase in the need for primary and acute care. Furthermore, a change in healthcare strategy, to treat more patients in the community to ease the burden on hospitals, should also drive demand for healthcare assets.
Investors are attracted to gaining exposure to healthcare real estate given the perceived stable and secure cashflow generated from the assets. It is not uncommon for the cashflow to be inflation-linked and partly government backed, or to have strong underlying creditworthy tenants. This means that income may be less volatile than in other sectors. The sector is typically less sensitive to fluctuations in the economy than many other property types, as a result of the needs-based nature of the services. Individuals continue to require medical and healthcare services regardless of economic downturns. However, demand may increase during such periods. This should create stability within this asset class when compared with sectors more affected by economic cycles.
Despite the attractions of the sector, healthcare real estate is generally a relatively small share of an institution’s portfolio. The sector is characterized by a number of hurdles to entry: for example, limited availability of stock, an enhanced regulatory framework and potential reputational risk. These difficulties to accessing the field, especially on a cross-border basis, mean that investors require a thorough knowledge of the various regulatory and operational issues and their implications.
Nonetheless, the recent increase in investment in this area suggests this will be an attractive sector for investors as we emerge from the pandemic and head into 2022.