Ahead of HBI 2022 next month, HBI caught up with Stéphane Pichon, founding managing partner, Your Care Consult and the chair of the Investing in Healthcare Property session on June 21, to find out how the healthcare property market fared last year, and prospects for the future.

Pichon is joined by Steve Nitschke, managing director – head of European acquisitions at Medical Properties Trust, Xavier Cheval, CEO, Icade Santé, and Alberto Fernandez, CEO, Healthcare Activos, on stage at HBI 2022 in our Investing in Healthcare Property session. Click here to see the agenda. 

According to Pichon, 2021 was a good year – 10% above 2020 at around €10bn in healthcare volume in Western Europe – but there are problems to contend with going forward.

He explains: “Capital is there still, demand is there, but for me the issue is shortage. A shortage of the right products, and a shortage of staff of course, and that limits capacity to increase revenues and potentially the rent reviews in the future that will be coming with inflation.

“In retail and hotels you can switch to variable rents based on revenue. In healthcare it’s rare. Inflation is an issue. There will be strong disagreements between lessors and lessees (in rent reviews) and in new developments, it’s increasingly difficult to agree on a price because the construction price is much higher today than two years ago, so the yield has to go down for the investor as the rent cannot be increased forever. I’ve seen this in France and it’s happening with new builds in Germany too.”

Notwithstanding that, the market is buoyant enough, though private equity, driven by a need for quick returns, is often not first in the queue to buy. Pichon explains: “On the operator side, it’s true that most major players are now PE backed. They prefer to buy existing things that are immediately EBITDA producing. On the property side, there are open ended funds which don’t mind having a mix of income producing assets and future proof new builds.”

Pichon is keen to stress when talking about property, while the majority is residential elderly care it is far from the full story: “Mental health is interesting, especially since Covid. And (the buildings used) are not too specific – you need rooms, typically a garden – so they can (subsequently) be converted to residential depending on the location if it’s not too isolated.

Country wise, the big four European countries for EU property deals are Germany, UK, France and the Netherlands. Pichon explains: “Typically Germany and the UK are €2-3bn in a good year, and France and Netherlands are more like €1bn. There’s a big gap then, I’d say Spain, Italy, Belgium, you’ll be €300-400m in transaction volumes, and Portugal last year was €2-300m, growing from a low base off the back of a good Icade deal for seven hospitals.

New money, ie investors who hitherto haven’t invested in healthcare, is coming into the market partially because compared to sectors like retail it’s seen as a safer mid- and post-pandemic bet. Pichon explains: “The incumbents are not happy about all the new entrants but at the same time that can provide liquidity to the market.

“You shouldn’t go in blind but every year there are successful new investors so it’s possible and some of them do well from scratch in a short period of time.” Healthcare real estate fund La Française, launched at the end of 2021, is among the new entrants he cites as a success.

When it comes to the flavour of the month, senior living – barrier free with services – is “the intermediate step and that’s grown a lot in Northern Europe”. Pichon explains: “It’s not medicalised, and the length of stay is higher. It’s the buffer before skilled nursing is needed. And it’s easier from the development side as you don’t typically need a licence. It’s just residential.”

With inflation a big issue, and staff shortage a problem, and aware of rising interest rates and the risk of economic recession, is Pichon still optimistic over the next year or two?

“Absolutely. Yes, a shortage of staff sometimes leads to not being able to open all the wings of a home or operate your hospital at weekends or at nights.  So you can’t get a decent return because you can’t stay open long enough.

“But – there is still a lot of capital to invest! Maybe the type of capital we see will change and it will need lower returns. But I’m still positive. I see investor and customer demand, even if meeting that demand has become a little more difficult”.