Jan24

Update 24 January 2023

Update 24 January 2023

As I am writing this there a (very) thin layer of snow on the ground and the temperature is low. Maybe we will still have some winter in the Netherlands. As always, there is news from the Dutch healthcare sector. In this update we cover:

  • Record investments in healthcare real estate in 2022. Will there be further growth in 2023?
  • Planned growth in elderly capacity not in line with (ambitious) targets. How will the shortfall be met?
  • Healthcare companies pessimistic abut expected 2022 financial results. What will 2023 look like?

Record investments in healthcare real estate in 2022

A recent report from Capital Value shows that for the fourth year in a row investment in healthcare real estate in the Netherlands totaled more than €1 billion. In 2022 a new record was set with investments totaling €1.3 billion. The largest share of the investments were made by Dutch investors. Dutch institutional investors were very active with a 70% growth in invested volume to a total of €482 million. This was to a certain extent driven by a couple of large transactions, including the sale by Orpea of 32 locations to Syntrus Achmea and the decision by Bouwinvest to invest in the development of almost 300 elderly care apartments in The Hague.

It is interesting to see that the number of deals has been decreasing for the last four years but that the average value per deal has grown sufficiently to grow the total market  (from €8 million in 2020 to €11 million in 2022). The increase in average value was driven by nine transactions with a value higher than €30 million that were responsible for 43% of the total investment volume.

The overall activity in the market decreased in the second half of the year. This was primarily driven by the increases in interest rates, but other issues such as inflation, increased building costs and overall political uncertainty also played a role. The effect of these changes was very large for deals related to new-build. It is expected that these uncertainties will continue to play a role in 2023, limiting the number of new entrants, and potentially reducing the total investment volumes. This is a shame as it will make it harder to reach the ambitious targets set in the WOZO-program. The largest share of investments in 2022 were related to elderly care and the demand for new-build in this sector is high and growing (see next item).

 

Existing plans for new elderly care locations will not meet targets

In the Dutch system for long-term care the Purchasing Offices are responsible for ensuring that there is sufficient capacity to meet (expected) demand for different parts of long-term care. The thirty-one Purchasing Offices are each responsible for a geographic region and are organizationally part of the healthcare insurance company with the largest market share in that region. Currently one of the key priorities of the Purchasing Offices is ensuring sufficient elderly care and following up on the goals and targets set in the WOZO program.

As part of this process the Purchasing Offices have carried out a country-wide analysis of the current development / building plans of the Dutch elderly care providers per region. In the period up to 2027 elderly care operators have plans for 18.920 additional elderly care beds. Approximately 40% of this are for intramural care (where the operators get government financing for real estate related costs) and 60% is for “clustered VPT” locations (where clients play rental costs). The increased focus on VPT-financed locations is good news as this fits well with the goals of the WOZO program. The bad news is that the target in the WOZO-program for the period up to and including 2027 is 50.000 new elderly care beds giving a gap of more than 30.000 beds.

According to ACTIZ (the trade association of long-term care providers) this shortfall will lead to longer waiting lists for complex elderly care and new challenges for primary care and home care providers that will need to provide care for clients with complex needs. According to Actiz, many elderly care providers have put many planned new locations “on hold” due to uncertainties related to the move to VPT-financing, announced reductions in the real-estate component of ZIN-tariffs in 2024 and the strong increase in building costs.

The challenges that the Netherlands will face to provide adequate care and accommodations for the growing group of elderly will only grow. This should represent an interesting opportunity for real estate investors that understand the elderly care sector and can develop solutions that meet the needs of the both the elderly client and the elderly care provider.

Healthcare operators pessimistic about 2022 financial results

According to a survey recently carried out by FIZI (the association of finance professionals working in the healthcare sector) 44% of the respondents expect that their organization will show negative financial results for 2022. There is large variation in these expectations between sub-sectors:

  • In the mental healthcare sector 67% expect to end 2022 with a loss. This is most probably driven by issues related to the new financing system for the sector
  • In the elderly care sector 47% expect 2022 to be loss-making
  • In the disabled care sector 37% expect a loss
  • In the hospital sector only 17% of the respondents expect a loss in 2022

The main reasons for the expected negative results are similar across the different sectors. The main driver for the negative financial results is issues related to finding sufficient staffing. Issues related to staffing have had a negative impact on revenues (less capacity to provide and invoice services) and costs (costs of hiring temporary staff). Another key cost increase is energy. A typical operator’s costs for energy were 73% higher in 2022 than in previous years. The financial professionals expect that staffing and energy costs will continue to be a challenge in 2023.