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Q4 to see record healthcare investment volumes despite COVID-19

by Joe Caretalk

– 2020 UK healthcare property investment market stronger than previous year –
– Investors increasingly seeking out specialist healthcare services –

Julian Evans, Head of Healthcare at Knight Frank

The UK healthcare property market is set to see record quarterly transaction levels for both M&A and fixed income in Q4 2020 with investment volumes in 2020 YTD already 25% higher than last year, according to global property adviser Knight Frank.

Total investment volumes into UK healthcare property in 2019 totalled £1.76 billion, whilst investment volumes in the sector so far in 2020 total almost £2.24 billion. With Q4 set to see the completion of a number of prominent and high value deals, Knight Frank predicts that the final quarter of 2020 will witness the highest ever quarterly transaction levels in the UK healthcare real estate sector.

High-profile healthcare property deals that are on the market and in the pipeline include England’s largest mental healthcare provider The Priory Group (£1.5bn), mental health services provider Elysium Healthcare (£900m), children’s care and education services provider Keys Group (£250m) in addition to another £3bn of specialist (mental health, learning disability) providers and £1bn of broader healthcare property transactions.

This comes as healthcare property has seen surging interest from investors both in the traditional sectors such as care homes and private hospitals, in addition to rising demand for more specialist assets and providers such as mental health, learning disability and children’s services including children’s homes, foster care and schools.

Julian Evans, Head of Healthcare at Knight Frank, said: “With a number of high-profile and large portfolios in the healthcare property market being brought to market, we are predicting record sales taking place in Q4 2020. There are currently two distinct investment silos: institutional capital is chasing social care fixed income such as real estate and private equity and infrastructure funds are seeking specialist sector companies.

“The COVID-19 pandemic has shone a light on the UK healthcare sector, both demonstrating the very best of the UK’s healthcare sector, with outstanding collaboration between the private sector, social care sector and NHS at this time of need, in addition to unfortunately highlighting the lack of investment by successive governments into the sector, and therefore the urgent need to prioritise preventative and crisis funding.

“As such, the investment appetite for healthcare real estate remains strong, both in more traditional assets such as care home developments as well as the increasingly popular mental health services sector. This demand is only strengthened by the limited supply within the healthcare market combined with the awareness of the ever-growing demographic fundamentals for these assets which are driving the sector. As a result, there will undoubtedly be a flight to quality as investors seek defensive healthcare assets and we anticipate that investment into the sector will continue to rise, from a broad church of domestic and overseas investors.”

Knight Frank’s predictions about record healthcare volumes follows the firm’s findings that the COVID-19 pandemic has highlighted the need for investment and innovation in the UK healthcare property sector, having accelerated trends that will lead to closures of healthcare properties, including care homes, that are no longer fit for purpose, resulting in a significant national shortfall of bed provision.

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