Healthcare investment volume slightly above previous year, but still well below long-term average

BNP Paribas Real Estate publishes market figures for Q4 2024

The healthcare investment market recorded a transaction volume of just under €1.2 billion in 2024. The previous year’s result was thus exceeded by 6%, but the year-end result is 51% below the long-term average. This is the result of the analysis by BNP Paribas Real Estate.

“The challenging financing conditions, the increased operator risk and the low level of new construction activity continue to noticeably dampen investment activities in the care property segment. In the course of the year, there were signs of a moderate market recovery, which paused briefly in the third quarter, but picked up significantly in the fourth quarter. At the end of the year, the highest quarterly volume since the end of 2022 was registered at a good €440 million,” explains Christoph Meszelinsky, Managing Director and Head of Residential Investment at BNP Paribas Real Estate GmbH.

A significant part of this very good quarterly result was due to the only transaction registered in the segment above €100 million for the year as a whole. In this context, Civitas has acquired the Katharinenhof Group with its 27 care facilities from Vonovia subsidiary Deutsche Wohnen (around € 300 million). This means that consolidation in the care facility industry continues to progress.

In view of the valuation corrections that have already been largely completed and the financing conditions are gradually improving, the prime yield is to remain constant at 4.90% in the second half of the year.

Nursing homes with small increase compared to the previous year

Nursing homes have a slightly higher market share than in the previous year (61%). The aforementioned portfolio deal is largely responsible for this. In absolute terms, however, the investment volume recorded for this sub-asset class (€712 million) remains well below the ten-year average (Ø10 years: just under €1.7 billion). In contrast, healthcare real estate (€346 million) recorded an increase of 69% compared to the previous year and an above-average market share of 30% (Ø10 years: 22%).

In terms of market shares by deal size class, a broader distribution of the investment volume can be observed: In particular, due to the aforementioned portfolio deal, the parcel sales division is more involved in market activity than in 2023. Overall, the market is more fragmented than in previous years, with a low average volume per deal of €22 million (Ø10 years: €30 million).

Against the backdrop of the still difficult financing environment, high construction costs and various operator insolvencies, only a small amount of new construction activity is currently being registered. Although more and more value-add investors are currently joining forces with developers for possible joint ventures in order to speculatively build in core locations, new construction projects are still only very selectively economically viable.

The fundamentals and framework conditions for the healthcare investment market are compelling. Particularly against the backdrop of a weakening macroeconomic environment, the market can be said to be relatively less cyclical, which holds out the prospect of stable cash flows. The prospects are particularly promising in the medium and long term, as demographic development is easy to predict and the ageing of society is progressing. Inevitably, the need for care facilities will increase. There are already bottlenecks in outpatient and inpatient care capacities, which will worsen unless capacity expansion is accelerated more strongly.

On the demand side, there has been a noticeable increase in interest in recent months – with very high operator quality, even in large-volume investment opportunities. At the same time, rehabilitation facilities are increasingly being targeted due to diversified refinancing models.

“In anticipation of further policy rate cuts and the associated better financing conditions, which should allow for more flexibility in price discovery, as well as the valuation corrections that have largely already been implemented, the market recovery is likely to gain momentum in 2025. From today’s perspective, a first slight yield compression in 2025 is quite likely,” says Christoph Meszelinsky, summarizing the outlook.