Even to the casual observer, the changes in the way the German health system provides non-hospital treatment are clear: as the country’s population ages and its medical care requirements increase, smaller hospitals in rural areas are shutting their doors; in Berlin, meanwhile, the federal government is looking at ways it can reduce excess hospital-bed capacity as spending on health grows – without any matching improvements in efficiency. As such, after concepts for out-patient treatment have proved their effect in elderly care, the focus is increasingly shifting onto them in health provision generally, and this in turn is leading to an expansion of centralised medical care facilities (medizinische Versorgungszentren, abbrev. MVZ) catering to a range of patient needs – and presenting an attractive new asset class to investors.
A proven success in other countries
A comparatively new concept in Germany, one-stop medical services centres with a range of general and specialised doctors’ practices in one location are run under single management and usually incorporate various medical suppliers such as pharmacists and service providers (e.g. physiotherapists), meaning that patients can get everything they need in one location. In order to accommodate this full range, medical centres require anything between 2,000m² and 15,000m² of space; on average, they have around half a dozen practicing doctors on site, and comparisons with similar concepts in USA, UK, and Australia show just how attractive this asset class looks in Germany from an investor’s point of view.
Still early days in the German market
In Germany, this kind of centralised medical facility is still a comparatively new concept, with care home property the far more established real-estate investment. This is likely to change in the coming years, however, as centres run by operators who sign a lease on the whole facility start to become core products; as such, in the medium-to-long term, it is to be expected that medical centres will represent a standard asset class in many portfolios. Structural changes in how the German health market works (e.g. increasing private provision, the shift from in- to out-patient care) will certainly contribute to this development, even though it is, currently, difficult to give reliable estimates of annual investment volume in this kind of medical centre; in terms of potential yields, however, preliminary figures suggest that profit margins are as high as 3.5% in urban and 5% in rural areas.
Factors in medical centre valuations
There are a range of parameters which affect the value of medical centre property. As ever in real estate, location is of primary importance, but needs to be viewed differently in this context with reference to the socio-economic statistics of the catchment area in question. Moreover, a competition analysis on a local or regional level is key to ascertain whether there is, or can be, sufficient demand. Ideally, the operator signed to run the facility will already have a strong track record in the segment and enjoy good credit ratings, as the public image of the operator is key to attracting both patients (i.e. customers) and ensuring that the use concept for the centre is well planned. In terms of quality, in medical services more than anywhere else, the space provided needs to be reflect the latest standards; related to this, the importance of a long-term rental agreement with contractual regulations for maintenance and upkeep as well as access to key performance indicators should not be underestimated, as these are prerequisites for attracting institutional investors.
A growth market – with complexities
The expert opinion is unanimous that medical centres represent a key element in future health provision and that, as such, they will develop into a core component of institutional investment portfolios. Yet as promising as centralised medical facilities may be, they also represent, due not least to regional disparities and a lack of market transparency, a highly complex asset class; another factor in this complexity is the multitude of socio-economic and demographic factors in the envisaged catchment area of the planned centre. All of this means that medical centre investment requires intensive consultancy from experienced analysts in the segment who can conduct a comprehensive, reliable examination of all the variables in play. Overall, when paired with detailed expert evaluation, centralised medical care facilities are an attractive asset class with high potential yields.
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