‘Comfortably Boring’ Healthcare outperforms all Commercial Property Sectors

Posted on 30 March, 2015 by Cliff Goodwin

Healthcare property continues to outperform all other commercial sectors, a new survey has shown. Last year returns from healthcare investment reached nine per cent for the first time in more than a decade.

Smiling female doctor shaking a hand in her office

Sponsored by chartered surveyors Aitchison Raffety, the IPD UK Annual Healthcare Index measures samples from just over 1,000 healthcare properties with a combined worth of £4bn. They include a mix of primary care properties leased to the National Health Service and GP practices. Other, secondary assets include nursing and care homes, specialist treatment centres and private hospitals.

Over the last 12 months, total UK returns across all healthcare property have increased from 5.6 per cent at the end of 2013 to 9.0 per cent by the end of December, 2014.

“That shows,” explained Mark Weedon, a vice president at Morgan Stanley Capital International, “that healthcare has outperformed all commercial property on an annualised basis since the launch of the index in 2007.”

Weedon said the recovery in the market was supported by improved total returns across all areas, notably London primary up from a 2013 return of 7.2 per cent to last year’s 11.8 per cent; Midlands North and Wales primary at 10.4 per cent in 2014, up from 7.2 per cent the year before; and also within the secondary sector were the last year’s 6.3 per cent was up from 3.2 per cent in 2013.

“Rental growth returned to all mainstream sectors of the healthcare market in 2014, and we have also seen a robust income stream over the last 12 months, particularly in the secondary market, and we have also experienced less volatility than core commercial sectors,” Weedon said.

Capital growth on all healthcare property entered positive territory for the first time since 2011 — hitting 2.1 per cent. This is nothing new, he added, with healthcare assets experiencing positive capital growth since 2009. The largest rise in capital growth over 2014 was experienced in London primary sector which rose from 0.8 to 5.2 per cent.

The index did, however, highlight the downturn in initial healthcare yields which are falling across all regions, in both primary and secondary sectors. At the end of 2014 property yields fell to 6.4 per cent, down from 7.0 per cent in 2013.

John Hearle is chairman and head of healthcare at Aitchison Raffety. “Healthcare property is a solid, long-term, secure investment showing steady growth and a lack of volatility,” he commented. “Some people may see the sector as ‘comfortably boring’ but certainly for primary healthcare, that is what the investor wants.”

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