The Care Home Investment Market in Germany
Growing numbers in a profitable new market
No other real estate market offers such a strong growth potential as the care home real estate market. While there’s a manageable amount of care homes, there’s also a growing demand in real estate projects. With demographic changes in society this demand is easily explained. For private and institutional investors alike a highly promising and profitable asset class has been developed. At the same time, care homes are considered relatively safe investment objects, because they are regulated by supervisory authorities.
THE IMPACT OF DEMOGRAPHIC CHANGE
Up until a few years ago, private investors wouldn’t have imagined investing in care home real estate. Investors were probably on the lookout for secure and profitable assets, but it was hard to imagine that care homes would ever be considered attractive investments. Care home investments were thus reserved for public investors. There were no problems with a scarce supply: Whoever needed a care place, could easily receive one within a short period of time. However, now the situation has changed fundamentally.
According to experts, the demographic change has a significant impact on the number of those in need of care. Until 2030 the numbers will increase even further. And the changes in the age structure can already be witnessed as more and more people are in need of care. The largest percentage of people in need of care are in outpatient care. The state is trying to make outpatient care more attractive by implementing monetary incentives. Nevertheless, the demand for inpatient care will continue to rise. It’s to be expected that there will be a shortage in high-quality care due to the demographic changes. Investments in private care home facilities are crucial in order to keep the care of the elderly at an appropriate level.
THE DEMAND IN GERMANY
When comparing the latest numbers of the care studies of the Federal Statistical Office, the increase of those in need of care becomes clear. At the end of 2013, around 2.63 million cases of care patients (3.3% of the population) were registered throughout Germany. From 2011 to 2013 alone, this number had increased by five percent. Compared to 1999, the number of cases has even increased by 30 percent. There is a high correlation between age and the probability of becoming a care patient. 93 percent of the patients were 65 years or older
Number of people requiring care and people over the age of 80s in Germany
As a result of the demographic change, 28 % of the population will be 65 years of age and older by 2030. In 2015 the percentage of this age group made up 20% only. With the rise in age, the risks for dementia will also increase. Dementia patients in particular are in need of care and cannot be looked after in their homes.
HIGH VACANCY RATES IN CARE FACILITIES
In 2016, there were approximately 11,300 inpatient care facilities. A total of 889,000 care places were registered for full inpatient care. 53 % of those places were accounted for by independent non-profit organizations, whereas public institutions accounted for 42 %.
According to the latest statistics, in 2013 764,000 patients were looked after in an inpatient care facility and 21,000 of those patients were in short-term care. 743,000 patients were in permanent care. This demand was met by a occupancy rate of 89 percent. The demand will increase significantly in the coming years, especially in the older age groups. Taking into account that a new care place will cost around € 100,000 to be realized, investments of around € 55 billion would have to be made by 2030 in order to meet the demand for care places. Since the public sector invests less funds in care facilities, most of them will be financed by private means.
BIG REGIONAL DIFFERENCES
According to a study by the The Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR), the demand for care places - in Berlin and Hamburg especially - is expected to grow rapidly in the coming years. Experts predict that the demand for new constructions hosting over 100 beds until 2030 will cost € 6 billion. In addition to that, modernization of existing care facilities will also be necessary. The refurbishment of care facilities in the old federal states is expected to cost an additional € 6 billion.
NUMBER OF PEOPLE IN NEED OF CARE IN THE LARGEST FEDERAL STATES (IN THOUSAND)
Similar trends are expected in the south of Germany. According to forecasts by the Federal Statistical Office, the number of people in need of care will increase from 340,000 to 450,000 in Bavaria within the next 15 years. The state capital Munich is especially effected by this trend. In the last years, there has been a great population movement, which is also due to the region’s economic power. The demand for care will also increase by 45 % in the greater Munich region. The concentration of people in need of care is partially due to the low mobility of the elderly and could last until 2030. This trend requires investments in care real estate because the increase in demand by 68 % cannot be covered.
Bavaria’s demand for permanent inpatient care despite being a rural and predominantly Christian region:
Bavaria is the largest federal state and has the second largest population after North Rhine-Westphalia. The federal state is known for being a pioneer in the realization of accessible real estate and care real estate. This is due to low occupancy rates in care homes. By creating attractive living spaces and arrangements, care homes were changed in a positive way for the elderly. Bavaria is also known for a low unemployment rate and good medical care. In addition to that, Bavaria is rural and has a predominantly Christian population. These facts result in many people in need of care being cared for at home or by an outpatient care service.
Nevertheless, there is also a high demand for permanent care places in Bavaria, which must be met in the future. The care home market itself is still dominated by the church and non-profit operators. However, the largest care homes are also located in Bavaria. When expanding the supply, the structural conditions in southern Germany must be considered. Even if the supply is not fully used today, the region must not be forgotten in future developmental projects.
CARE FACILITIES: AN INTERESTING INVESTMENT
When looking at the organizational structure of the care facilities, one notices a distinct distribution. 54 % of the facilities are supervised by non-profit organizations such as the German Caritas or the Diakonische Werk. 40 % of the facilities are privately owned. The market is fragmented. The 10 biggest private organizations only make up 10 % and the market leader ProSeniore only makes up 1 %. More than 5% of the facilities are in public ownership. The market share of public operators total over 10 % in Bavaria.
In the future, the care market will be even more attractive for private investors. The year 2016 is considered a record year with investments in care home real estate totalling € 3 billion, even though the growth is also due to a number of large scale acquisitions by institutional investors.
HOW TO INVEST IN CARE HOME REAL ESTATE
Care home real estate investments are considered specialized and complex. Nevertheless, they are also a safe investment with a reasonable return and can be an attractive addition to the investors’ portfolio. The question is how to invest in this investment class: In addition to real estate funds, in Germany it is also possible to invest in individual care home projects through crowdfunding. The advantage is that investors can decide for themselves where they wish to invest and can make a direct online investment on the selected crowdfunding platform. This gives private investors the opportunity to invest in attractive care home real estate.
The crowdfunding market has grown exceptionally in the last three years. More and more real estate projects, such as care homes, are now available as attractive investment opportunities. Until August 2017, around € 80 million had been invested in real estate via crowdfunding platforms. In 2016, it was only around € 40 million. Care home properties will continue to be sought after by private and institutional investors due to a growing demand. Private investors can now also use crowdfunding and real estate funds.