Investment into UK healthcare assets fell 49% to £1.2bn in 2023, according to Knight Frank’s Healthcare Capital Markets 2024 report.
Almost half (48%) of transactions were single asset deals, compared with 28% in 2022, with overseas buyers less active, accounting for 25% of volumes compared with a five-year average of 48%.
Elderly care facilities accounted for 83% of transactions last year and demand for these facilities is predicted to increase dramatically with the UK’s over-85 population set to rise from 1.7m to 3.7m by 2050.
Knight Frank’s analysis found the WAULT across healthcare assets is 25-30 years, with leases indexed to inflation. Average annualised returns reached 4.4% in Q4 2023, up from 3.5% in 2022.
With monetary policy expected to ease in the second half of 2024, Knight Frank is predicting an increase in investment volumes underpinned by the sector’s strong fundamentals.
Julian Evans, global head of healthcare at Knight Frank, said; “While healthcare investment was down in 2023 in line with real estate transactions globally, the sector’s strong fundamentals means we expect activity to rebound this year as monetary policy begins to ease. 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 in the healthcare team at Knight Frank, added: “The cost of debt contributed to a drop-off in larger portfolio deals in 2023, with volumes driven by smaller, single asset transactions. 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.”