Lack of nursing staff becomes a barrier to new construction

In 2024, healthcare properties in Germany were traded for around €1.1bn. This was 12% less than in the previous year. At €532m, the majority of the transaction volume was attributable to the final quarter, which was also the quarter with the highest turnover in two years. This was partly due to the sale of Vonovia's Katharinenhof portfolio to Civitas Investment Management. However, activity also increased in the second half of the year independently of this portfolio sale.

The prime yield for care homes remained stable for the fourth consecutive quarter and stood at 5.2% at the end of the year. The prime yield for assisted living properties did not move either and remained at 4.5%.

Care homes once again more in the focus of investors
At €617m, or a volume share of 55%, care homes were by far the type of use with the highest turnover. Assisted living facilities followed in second and third place with €234m and hospitals with €121m. In discussions with investors, we are once again seeing a somewhat stronger interest in care homes. In our view, there are several reasons for this. Firstly, many care home operators have now consolidated and the increased investment cost rates promise a stabilisation of business operations. Secondly, in view of the long-term demographic trend, many investors are focusing on the healthcare property market and care homes are by far the most liquid type of use here, whereas building up a large portfolio of assisted living or medical centres is comparatively challenging. The latest data from the Federal Statistical Office, according to which the number of people in need of care in Germany rose by around 700,000 between 2021 and 2023 alone, underlines the upward trend in demand for care properties. The forecasts are also clearly pointing upwards. The prospect of a structural increase in demand sets the sector apart from other property types, where the future development of demand is subject to significantly more question marks. It is also this growth perspective that is increasingly attracting international capital.

International buyers have become more active
Last year, a number of international investors entered the German healthcare property market for the first time and other players are waiting in the wings. Meanwhile, some long-standing investors and landlords are currently less active on the buyer side as they are very busy with their existing properties, for example renegotiating reporting obligations for operators or implementing ESG measures. This opens up opportunities for new players to enter the market and it is currently mainly international investors who see potential in the German healthcare property sector. However, the supply side is currently dominated by value-add products, meaning that players with an affinity for risk are the main ones to enter the market.

Operators are expanding again, but mainly by overtaking existing facilities
On the operator side, the situation remains challenging for some providers, as illustrated by the continuing high number of insolvencies in the healthcare and social services sector (Graph 3). Nevertheless, there are signs of a sideways movement here. According to our observations, more and more care home operators have recently been able to stabilise, partly due to the renegotiated investment cost rates, and some have returned to a course of expansion. They are primarily focussing on the takeover of existing homes and competitors, as organic growth is difficult due to the shortage of specialist staff. The lack of nursing staff is also a major hurdle when opening new facilities. In this respect, operator growth has not resulted in an increase in supply for the time being.

Lack of nursing staff has become a barrier to new construction
In the meantime, it is primarily the shortage of skilled nursing staff that is preventing a revival in new construction activity. In southern Germany in particular, investment costs of over 40 euros have been negotiated, a level at which the construction of new care properties theoretically pays off again. In practice, however, it is difficult to attract an operator for such new-build projects, as the necessary specialised staff is scarce. Risk-averse investors, i.e. the typical buyers of new builds, also shy away from the risk of starting operations and currently prefer to invest in younger existing properties. A revitalisation of new construction is therefore not to be expected any time soon, which means that the shortage of supply is likely to be cemented. One niche in new builds that is currently working well for operators and investors is replacement new builds, as staff and residents move with them and the ramp-up risks are lower. In view of the risks in new construction, significantly fewer project development purchases took place last year. In total, around 5% of the transaction volume in 2024 was attributable to purchases of project developments. The average for the last five years was 21%. In absolute terms, the transaction volume for project development purchases (€61m) was the lowest since 2013.

Market upturn likely to continue in 2025
We expect the upturn in the healthcare property market to continue in 2025 and the transaction volume to be higher than in 2024.

All illustrations and the corresponding data can be downloaded here.