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Healthcare market outperforms commercial property in 2009


The healthcare property market has outperformed the broader UK commercial market for the third consecutive year, at 5.4 per cent in 2009, according to the IPD UK Annual Healthcare Index.

At the morning launch of the index results – sponsored by Aitchison Raffety, Colliers CRE and Hempsons and held at the Royal College of Surgeons in central London – Ian Cullen, co-founding director of IPD told delegates: “The 5.4 per cent annual return represents the third consecutive year in which the healthcare property has proved robust against the worst financial crisis and synchronized global recession we have ever seen.

“These have been the most testing times for any branch of real estate investment and the margin of outperformance compared to the broader commercial market has been significant in each of the three years.”

Within the two-tier healthcare market, the strongest performance was delivered by the primary sector – comprised of doctors’ surgeries, dentists and polyclinics – at 8.8 per cent. The secondary sector, which consists of hospitals, long-term care facilities, nursing homes and specialist treatment centres, returned 2.2 per cent.

Cullen added: “In the healthcare market, the robustness of rents, a long-term driver of performance, defended the sector and contributed to delivering the difference between the mainstream commercial assets and healthcare properties.”

Ahead of the index results, in a presentation which covered the economic context as well as a commercial and healthcare property market overview, Walter Boettcher, director of research and forecasting, Colliers CRE, said: “There was dramatic yield compression from the middle of last decade to the crunch of mid 2007, which brought the sector in line with the broader market, produced huge capital growth and some extraordinary returns in healthcare.

“One of the drivers of that was competition for stock in the core sectors was so intense that investors starting looking at alternative sectors like healthcare. Going forwards, now that healthcare has come in line with the core sectors, the yield patterns will probably track other sectors more closely.”

The primary healthcare sector was the focus of the next presentation. Bruce Walker, chief executive at AH Medical Properties, told delegates the central concern for the healthcare property market is government’s position on funding new primary schemes.

Walker explained: “The broader demographic profile and demand is undisputed, how that is delivered through government funding is a bigger question. In the medium-term the government is likely to continue its investment in primary care.

“There is no threat to our existing lease structures, there is no prospect of any renegotiation of GP rent reimbursement contract or closing down surgeries to save on rent. The risk really is about new procurement and new capital coming into the sector; how much new product is there coming through.”

The key contributors to the IPD UK Annual Healthcare Index were MedicX Fund; Primary Health Properties; Assura Group; Ashley House; and Aviva Quercus. The index is comprised of 571 healthcare properties worth GBP1.8bn.

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