Healthcare market
From a niche to a fully-fledged market
Executive Summary
In this section
Challenges in the healthcare sector are shaping the fundamentals for healthcare real estate
Demographic, economic, and social trends are driving the need for a change in how healthcare in general and healthcare for elderly in particular will be organised in the future. The sector is seeing a shift from ‘care’ to ‘health’ and a continuing extramuralisation of care, whereby care and support will increasingly be provided at home and at locations other than in institutional nursing homes.
This is a current theme not only in the Netherlands, but in many other countries in and outside Europe. Healthcare real estate will play a significant role in the solutions being considered, especially when it comes to providing the necessary quantity and quality of senior housing where elderly people can live independently for as long as possible and where care at home can be provided when needed.
It is very likely that suitable senior housing will contribute to the postponement or even avoidance of traditional long-term care in nursing homes. However, this transition is also one of the biggest challenges that societies are now facing.
The demographic fundamentals clearly highlight the upcoming challenges. The latest data from ABF Research show that the number of people aged over 65 is expected to increase to nearly 4.9 million by 2050, an increase of more than 1.3 million or 38%.
The largest growth will be in the age group of 85+, confirming the double-ageing trend. In fact, the current forecast shows that the population growth of the age group of 65-75 years will peak in 2035 and will then slow down and even shrink from 2045-2050, whereas the 85+ age group continues to show steep growth figures throughout the forecast period.
4.9 million
the number of people aged over 65 by 2050
These demographics will definitely lead to greater demand from elderly people for more intensive and longer-term care, as old- age-related diseases, such as dementia, will also increase rapidly. Research by Vektis and Alzheimer Nederland underpin this with forecasts showing more or less a doubling of the number of people with dementia in the Netherlands, ranging from between 250 thousand and 290 thousand in 2022 to around 460 thousand to 600 thousand in 2050 (Vektis and Alzheimer Nederland, 2022).
The ageing trend is driving the emerging economic trend of rapidly rising costs of elderly healthcare. As a result, there is increasing pressure on the working age population to bear these costs. This is shown by the increasing proportion of elderly people as a percentage of the working age population, i.e. the old-age dependency ratio, which is set to rise to 41% by 2050 from 31% in 2022.
The Netherlands already has one the highest long-term care spend per capita in Europe. The latest estimate from the Netherlands Bureau for Economic Policy Analysis (CPB) of Dutch healthcare expenditure shows that, if there are no changes in policy, collective healthcare expenditure will increase from almost 11% to over 18% of GDP between 2025 and 2060. The largest increase will be in long-term care.
Rising personnel costs are a significant driver of rising healthcare costs. This applies to both the cure and care sectors, but nursing and home care in particular are dealing with significant, and much needed, wage increases in new collective labour agreements.
More expensive self-employed and temporary workers are also accounting for a larger share of total personnel costs. This share has risen to almost 10% due to structural personnel shortages and a high absenteeism rate of more than 8% of the workforce. (Intrakoop: annual report analysis Healthcare sector, 2023).
Given these demographic and economic realities, Dutch society is facing an enormous and urgent task of providing a substantial number of suitable senior living and care homes in the coming decades, as well having to deal with the exploding costs of (elderly) healthcare and the structural personnel shortages in the sector.
Surging demand for a diverse range of assisted living products
Stakeholders in the healthcare sector, including policymakers, share the view that the key to releasing some of the pressure on long- term care in nursing homes and reducing long waiting lists, lies in stimulating more elderly people to continue to live independently at home for more prolonged periods and avoiding a move to the institutional nursing home care system.
This will require the realisation of significantly more suitable senior housing, preferably clustered homes, with the right building characteristics to provide efficient care at home. Technological innovations in the healthcare sector can also help to provide more efficient care and increase the productivity of care workers.
Another tool for further efficiency is the stimulation of more cooperation between the various domains from which elderly care (at home) in the Dutch healthcare system are funded. These are the Health Insurance Act (Zvw), the Long-term care Act (WLZ) and the Social Support Act (Wmo 2015).
This is precisely what the Living, Support and Care for the Elderly (Wonen, Ondersteuning en Zorg voor Ouderen, or WOZO) programme and ancillary policies are aimed at. Additionally, the Living and care for the elderly programme (programma Wonen en zorg voor ouderen) aims to accelerate the construction of at least 290,000 senior living apartments (i.e. 170,000 zero-steps apartments, 80,000 clustered homes and 40,000 clustered homes appropriate for nursing care) that are suitable for providing (future) care at home, along with actively helping the elderly to move to these houses in good time.
Another target of this programme is to realise attractive living environments that are accessible for elderly people, have plenty of amenities and invite elderly people to stay active and meet other people.
To actually implement these programmes, Dutch society will have to take quite a few hurdles. In addition to the current challenging real estate markets, the most important will be to develop and build more demand-driven housing and environments for elderly people.
One way to do this is by truly aiming to meet the housing needs and preferences of elderly people, and perhaps even involving them in the design stage. This will stimulate and encourage them to move more often and earlier to lifecycle-proof homes. Several studies, such as the Elderly Housing Monitor 2022, have shown that elderly people are less inclined to move from their current home, but also that they are more willing to move if the quality of the residential concept and, just as importantly, the quality of the living environment suits their needs.
This is increasingly being recognised and underpinned by demand-based research that is looking into the housing preferences of elderly people and matching these with senior living concepts. For example, the Platform 31 thinktank has identified ten senior living concepts based on the most prevailing preferences of elderly people, while the Zorgsaam wonen platform has come up with six typologies.
The senior living concepts they distinguished range from more independent living, for example in apartment buildings, to more clustered and community living. Common preferences are the presence of community spaces and gardens where people can meet, form communities and, by doing so, increase vitality, reduce loneliness, and even counter dementia.
Other common requirements include the presence of amenities, such as shops and restaurants, plus public transport within walking distance, as well as public space that is safe, recognisable, liveable, comfortable, and accessible. The availability of care in the neighbourhood is also seen as important. One senior living concept often mentioned as an example of co-creation is the Knarrenhof concept, which has already been built in Zutphen and which is being rolled out to several other municipalities in the Netherlands.
Separation of living and care is the trend in nursing home care
Since the implementation of the Long-term Care Act (Wlz) in 2015, new funding options such as the personal budget (PGB) and full home care package (VPT) have made it possible to receive care at home, in addition to intramural care in traditional institutional nursing homes. This has also stimulated the rapid growth of private care homes in the Netherlands, one of the main characteristics of which is the separation of rent for accommodation and additional services - such as meals and laundry - and care funded through the PGB or VPT.
The number of private care homes in the Netherlands doubled to approximately 585 in 2023 from around 291 in 2018 (Zorgkaart Nederland 2019 and 2023). In addition to this, the private care market became more differentiated in terms of pricing, as more concepts are now aimed at middle-income and even lower income elderly people with, rather than solely at the high-income group.
This rapid expansion was mainly driven by the roll-out of a number of concepts, such as Stepping Stones (mid-segment) and Dagelijks Leven (lower and mid-segment) throughout the Netherlands and by the ongoing consolidation in the sector. The two largest players in the private care market are the French operators Orpea and Korian. They have acquired several care concepts over the past few years and together now account for around 30% of the total number private care homes in the Netherlands.
Another 20-25% is owned by care providers with more than 10 locations in the Netherlands, such as Herbergier and Domus Valuas (Zorgkaart Nederland 2023).
Recent government policy is aimed at restricting the number of intramural nursing home places to the current 130,000 and moving less intensive elderly care outside nursing homes to 40,000 newly built places in clustered care-appropriate homes.
As a result, more traditional nursing home providers have now also started implementing care models based on the separation of accommodation and care and on providing additional services, such as meals. As a result, the distinction between the private and regular intramural care sectors is becoming less clear and the nursing and care sector is becoming more differentiated.
The trend of increasing separation of living and care is also seen in the increasing share of VPT (full home care package) in the nursing and care sector with treatment, which increased to over 11% in 2021 from just under 6% in 2015.
We expect this trend of extramuralisation and continued consolidation of (private) nursing home care to continue in the coming years. The latter is also being stimulated by the weakening financial situation of care operators, who are being confronted with higher
costs for personnel, energy, food, transport, rent and maintenance for their buildings, as well as with lower income from the planned 1.7% reduction in government funding of their accommodation (NHC tariffs) from 2024.
585
the number of private care homes in the Netherlands in 2023
Cooperation between healthcare players and investors can help tackle the challenges ahead
Healthcare institutions, healthcare authorities, health insurers, local, regional and national authorities, housing associations and developers are also looking to collaborate more as a way to tackle the major challenges that lie ahead in meeting the demand for elderly housing and care, as well as rising labour shortages.
In addition, institutional (real estate) investors are playing an increasingly prominent role and are willing to take more responsibility in terms of contributing for the longer term. When it comes to new forms of living, in which care is shifted from nursing homes to the home environment and the delivery of care is shifting from intramural to a complete package at home, institutional investors have expertise and know-how in residential markets in general and the rental market in particular.
They also know about tenant needs and tenant engagement and can stimulate investments in sustainability. They see opportunities in investing in modern and sustainable care accommodation, for example through the redevelopment and upgrading obsolete buildings – including making them more energy efficient - in combination with sale -and-leaseback transactions.
In turn, healthcare providers have the knowledge and expertise in long-term elderly care and the building requirements for providing care at home as efficiently as possible. In addition, more healthcare operators are seeing a weakening in their financial position and by working with investors through sale-and-leaseback transactions they can create more financial headroom for their core activities, as well as gain access to modern, sustainable and more care-efficient accommodation.
Healthcare remains attractive as real estate investment segment
Investors are attracted to the strong demographic fundamentals of the healthcare sector, in particular the extramural care and nursing care segments, and its relative resilience in the face of economic turbulence, together with still attractive yields compared to long- term interest rates.
Compared to other real estate sectors, healthcare real estate has already shown it can provide relatively stable investment returns and that it is relatively resilient in adverse economic conditions. This is also shown in the five-year average return figures in the MSCI real estate benchmark.
The other benefits investors see in healthcare real estate investments include the possibility of portfolio risk diversification, as investments hold both characteristics of residential accommodation (i.e., assisted living apartments) and commercial real estate (i.e., private care homes and nursing homes). Additionally, long-term leases of 15-20 years with healthcare operators are common practice and operators are often responsible for part of the maintenance costs. Finally, healthcare real estate can contribute to investors’ ESG and social return targets.
Over the past five years, total annual healthcare sector investment volumes rose rapidly to reach the one billion level in 2019 and increased to around € 1.4 billion in 2022. However, as a result of the sharp rise in interest rates from the second half of 2022, real estate investment volumes collapsed in 2023 and net initial yields shifted upwards as prices adjusted to the new higher interest reality.
Still, when interest rates become more stable again, we expect healthcare real estate investments to pick up substantially and to also become more important in relation to other real estate segments, climbing to a 10% share of total real estate investments in the Netherlands within the next five years.