In the past years, emergent real estate sectors have been receiving a lot of attention from investors due to their compelling supply and demand characteristics, limited correlation with broader economic movements and attractive lease terms. The growth in these sectors has not only been due to the impact of new technologies and changing consumption trends but also because of stronger investor demand for social real estate. With increased pressure on funding to achieve governments’ goals in the fields of housing, education and healthcare, EPRA believes listed real estate has an important role to play in filling this gap.
To assess these social property sub-sectors, we focus on healthcare, social housing as well as student housing and look at how these property classes have evolved. The interest in these assets coincides with the continuing trends of an ageing population, a shortage of care beds and increasing enrolment rates in higher education institutions.
Several North American healthcare specialist REITs have been around since 1999 when the FTSE EPRA Nareit Real Estate Index was created. They have by now reached a significant representation by becoming the third largest asset class in the North American Index after the retail and residential sectors. Europe, on the other hand, has experienced a very different growth trajectory with the first healthcare company being added to the index in 2005 and the remaining four only in the period between 2013 and 2015. In Europe, the period from 2013 through 2017 has marked an impressive growth in the social property sector where we saw a wave of IPOs in the social housing and student housing sectors.
In January 2019, almost 14% of the EUR 740 billion North American Index free float market capitalisation is represented by social purpose real estate, with EUR 97.5 billion being in healthcare and the remaining EUR 5.5 billion in student housing. This proportion has remained relatively stable over the last eight years and highlights the maturity of the North American healthcare sector.
When looking at the composition of the social purpose real estate in Europe, the picture is very different. As of January 2019, out of EUR 231 billion market capitalisation of the EPRA Developed Europe Index, EUR 5 billion was in healthcare, EUR 1.1 billion in social housing and EUR 4.5 billion in student housing. Under 5% of the index market capitalisation included specialist owners of social purpose real estate in January 2019, up from 2.2% in 2015. Although significantly smaller than in North America, the rising importance of social property and diversity of assets becomes clearly evident.
The healthcare sector encompasses a range of assets from senior care accommodation to primary care premises and nursing homes. Since 2012, the ownership of healthcare assets by European index constituents more than doubled from EUR 5.1 billion to EUR 11.6 billion in 2017. The assets are diversely located in countries such as the UK, Belgium, the Netherlands and Germany.
Furthermore, Aedifica’s GBP 450 million entry into the UK market in 2018 and the pending merger between MedicX Fund and Primary Healthcare Properties, creating a GBP 2 billion healthcare assets portfolio, further highlight the consolidation of the sector.
During 2016 and 2017, the market saw three listings of social housing specialists in the UK, raising over EUR 833 million in proceeds.
Through the Index, two social housing REITs offer exposure, mainly to specialist supported housing, which, unlike regular social housing, is developed in accordance with local authorities’ priorities and promotes independent living for those with learning disabilities. The total value of these assets is EUR 737 million. A report by Mencap1 suggests demand for this type of unit will increase from a baseline of between 22,000 and 30,000 in 2017 through 2018 to between 29,000 and 37,000 units by 2027 through 2028 in England alone.
The increasing demand for higher education is strongly driven by changes in demographics and wealth distribution. According to a recent report by Cushman & Wakefield2, approximately half of all school-leavers in the developed world are now attending university. With more than 19.5 million students enrolled in tertiary education in 2016 in Europe alone (up from 18.4 million a year before)3, there is no question that the demand for student housing will persist. The value of student accommodation assets held by the index constituents now exceeds EUR 4.8 billion and is geographically concentrated in the UK, Belgium and the Netherlands.
Besides specialists, other European real estate companies also have exposure to social property, just as a part of a more diversified portfolio. Companies such as Swiss Prime Site, Icade, Cofinimmo and Klövern have almost EUR 5.8 billion invested in this type of asset.
To further support wider-scope research of emergent sectors, EPRA has commissioned a project that will provide important insights into the emergent real estate asset space in the European and global context, identify historical and current allocations to both traditional and emergent sectors and provide a comprehensive analysis of performance drivers. The study is expected to be available in September 2019.
1 Mencap (2018). Funding supported housing for all – Specialised Supported Housing for people with a learning disability.
2 Cushman & Wakefield (Spring 2018). European Student Accommodation Guide.