**1.3 Trends and development**

Trends and developments are:



**Figure 3.**

*Advantages and disadvantages of investing in healthcare real estate [14–16].*


## *1.3.1 Population composition is changing significantly*

The composition of the population in the Netherlands will change in the coming decades. The number of elderly people will rapidly increase during that period. CBS indicates that the number of 65+ people will increase from 2.7 million in 2012 to 4.7 million in 2041. Until 2060 the number moves around about 4.7 million, see (**Figure 3**). In the coming years, first the share of 65–79-year-olds will rise sharply. From 2025, the group of 80+ year old will also increase sharply, the so-called double aging. In 2040, the Netherlands will reach the peak of the number of 65+ people. An estimated [17] 26% of the population will then be over 65. About 10% will be older than 80 at that time. In 2013, only about 4% of the population is older than 80. In the coming decades, the "gray pressure" will increase sharply. In 2012 this is about 27%, while this will be about 51% in 2040. This pressure indicates the ratio between the number of people over 65 and the potential labor force. It provides insight into the ratio of older people to the potential working portion of the population that must absorb the burden of aging. In 2012 there are still four people working for every elderly person. By 2040, this has decreased to two employed people for every person over 65. After 2040, the gray pressure remains stable until about 2060 (**Figure 4**).

In the coming years, the demand for nursing home and nursing home care will develop differently start to develop differently than in the previous decade. Several developments can be identified, each affecting the total demand for care for the elderly in a different way. These developments are:


*Doubling of Dutch Healthcare Real Estate Investments in 2022 Compared to 2016 DOI: http://dx.doi.org/10.5772/intechopen.112326*

#### **Figure 4.**

*Number of millions of 65- (blush line) and 80+ people (green line) 1950-2012 and forecast number of 65- and 80+ people, 2013-2060 (source: CBS Bevolkingsstatistiek; CBS Bevolkingsprognose voor 2013-2060).*

#### *1.3.2 More private interference in the Netherlands*

The government's influence in the Netherlands is waning with the restructuring of long-term care. The allowance for housing for those in light care—the so-called care package 1 to 4—has been abolished. In addition, the government is making an appeal to society through the Participation Act. In Europe, historically large differences are visible between different countries and how long-term care is or is not regulated. In southern and eastern European countries, the role of the family in care is greater than in Northern Europe where the role the government is dominant. A combination of family and government is found more in Central European countries (see **Figure 5**). There are large differences between all these countries significant differences when looking at the percentage share of national income spent on long-term care. There is also more of a convergence in terms of a care system in which family and government will play an important role together.

The transition of care in the Netherlands means that there is less and less government involvement with the result that housing for those in need of light care is no longer funded by the government funding. This group must now provide for their own housing. Developments of new solutions to rent housing from investors in the immediate proximity to care facilities offer opportunities. General practitioners in primary care facilities a major role to relieve the more expensive second line. We increasingly see first and second-line facilities clustering in health centers. These can be attractive investment propositions for investors, developers and building entrepreneurs.

#### *1.3.3 Healthcare real estate internationally a proven investment category*

In the Netherlands, investments in healthcare real estate are limited compared to abroad.

Out of total invested assets, Syntrus Achmea Real Estate & Finance estimates that approximately 500 million euros in healthcare real estate is held by Dutch institutional investors. If we compare this with the total invested assets in real estate in the Netherlands of approximately 50 billion euros, then healthcare real estate is only 1% of that. When the United States, the two largest public healthcare real estate funds have

#### **Figure 5.**

*Long-term care responsibility by country and home care spending as % of GDP (source: SCP 2014, editing Syntrus Achmea Real Estate & Finance in Veuger et al. [2]. Bron: SCP 2014, editing Syntrus Achmea Real Estate & Finance in Veuger et al. [2]). [Familie is Family, Beide is Both and Overheid is Government].*

a combined market of approximately \$50 billion, with the total healthcare real estate market being as much as \$1 trillion. The maturity of investing in healthcare real estate is also determined in part by the fact that Australia, for example, has already had a professional return series: the MSCI Healthcare index. A comparable index in Netherlands does not (yet) exist, although the market clearly indicates a need for one is. The potential for potential investment for the attractive healthcare real estate market and is, for example, larger in size than the entire retail market real estate in the Netherlands.

#### *1.3.4 Large potential for transaction volumes*

The development and investment market of healthcare real estate has received increasing attention since 2012. More national and international (institutional) investors are expressing their ambition to set up a fund for healthcare real estate or to conduct research in this market so that its transparency can be increased. Private investors are also showing increasing interest in this segment, and healthcare bonds are going to develop further in various forms. Looking at registered healthcare real estate investment transactions by DTZ Zadelhoff, for example, in 2013, the following picture emerges. In 2013 it recorded approximately 120 million euros in investment transactions and in 2014 this increased to approximately 180 million euros. These investment transactions concern only a small part of the investment volume in 2014 of approximately 10 billion euros. This shows that this development and investment category is growing rapidly.

The ambitions of various investors, and thus opportunities for developers and builders, are substantial given that over EUR 2.5 billion is available from investors to invest in healthcare real estate in the coming years. What is important here are a number of—non-exhaustive—preconditions because the healthcare real estate market is and will continue to be very dynamic.

Preconditions include:

• (new) construction and less than two years in operation;

*Doubling of Dutch Healthcare Real Estate Investments in 2022 Compared to 2016 DOI: http://dx.doi.org/10.5772/intechopen.112326*


#### **1.4 Investing**

Investing issues are:


Research [11] shows that the Netherlands has sufficient real estate mass but that currently too much healthcare real estate is not attractive to invest in. Conditions have however become more attractive due to changes in the Netherlands' healthcare policy and the user perspective: more people are aging longer. In addition to these positive developments, there are not yet transparent and reliable series of healthcare (real estate) returns for an asset-liability management (ALM) study: gaining insight into dependencies of the organization in relation to its liabilities and rights.

When we look at healthcare real estate investments in neighboring countries it appears that healthcare real estate carries little market risk [18] and has stable returns over the longer term. It is important to recognize that healthcare real estate has different and thus more specific risks and uncertainties than, for example, the office or retail market. Because the amount of publicly available real estate information is very limited, insights and thus transparency in the Dutch healthcare real estate market are (still) very limited.

The Economic Institute for the Building Industry (EIB), based on the available information available information on marketability, user characteristics and the previously distinguished segments positioning in a quadrant model (see **Figure 6**). In this model an attempt is made to position the distinguished segments. For each segment, an expected growth per year of the stock in that segment until 2030 is given [11]. The picture that emerges here is not an exact positioning but does provide a general of the developments regarding the (in)marketability and (un)profitability of the segments and the development directions of the segments. At object level, the (in) marketability and (un)profitability in the segments are more nuanced.

Looking at the investment grade of the healthcare real estate matrix, a number of development directions can be identified for certain segments until 2030 [20].

Real estate for primary care has sufficient mass in the attractive size range. There is some freedom to shape business operations. Smart combinations with other health care providers are possible. Cure is reluctantly left to the market, though. More

#### **Figure 6.**

*Investment grade healthcare real estate matrix, growth rates by year to 2030 (Source: Elp 2015 in Care Real Estate Barometer 2015 [19]. Editing: Veuger 2023. Four quadrants are distinguished in this figure: Quadrant I: creditworthy institutions in current real estate = investment grade; Quadrant II: creditworthy institutions in current real estate = question mark; Quadrant III: unprofitable institutions in current properties = noninvestment grade; Quadrant IV: unprofitable institutions in current real estate = question mark.*

market forces, and increasing prosperity, will benefit private clinics more. A significant portion of primary care real estate is outside the larger cities. This makes private financing more difficult. The primary care segment is expected to shift cautiously from question mark to investment grade.

**Second- and third-line** care tend to use monofunctional large buildings (hospitals). There is mass in them, but the number of individual properties is limited. Government influence is high. In the new healthcare system, capital costs in the coming years will be accommodated in tariffs through the normative housing component. Healthcare institutions will thus become risk-bearing for their real estate. Thus, real estate decisions will be made more businesslike. This would gently move the segment from non-investment grade to a question mark.

**Residential care real estate** is used for vulnerable care clients, such as those with dementia and disabled. Care must be available on demand. Residential care real estate is relatively function specific because of the specific design for this group (wider corridors, extra safety measures). In time, under pressure from the wishes of wealthier users there will probably be room for more own payments. Rationalization of investments will also apply to residential care real estate. The existing stock in particular is not investment grade. In time, a move to investment grade is foreseeable, certainly with regard to new construction because transformation is taken into account.

**Real estate with a care function**, mostly nursing homes, is struggling. Previously, for a large the so-called residential and accommodation component of the AWBZ for a large group of elderly people. Meanwhile, the least intensive indications have been abolished and in 2016 another group that will then no longer be entitled to a package including living and accommodation. Care homes that previously provided housing and care as a package are now seeing elderly people making a different housing choice. The existing real estate is not geared to this. The baseline situation thus fits

*Doubling of Dutch Healthcare Real Estate Investments in 2022 Compared to 2016 DOI: http://dx.doi.org/10.5772/intechopen.112326*

into the heart of the quadrant model and with some growth driven by the aging population, this segment is expected to become more investment grade.

**Private clinics and hospitals** are attractive as an investment: smaller government influence, co-payments dominant, and favorable scale. In abroad this is also preferred. The outlook is favorable; high growth of both segments is credible. Increasing prosperity and developments towards more market forces result in high growth rates for private clinics and hospitals. Thus, private clinics and hospitals are eventually shifting from a question mark to investment grade.

### **1.5 Transnational volumes**

Transnational volumes are:


#### *1.5.1 Long-term overviews*

Long term overviews of transaction volumes and initial yields of healthcare real estate in the Netherlands are not (yet) available. However, this is developing more strongly in the Netherlands. If we look at investment volume in the Dutch healthcare real estate market and disregard transactions between healthcare institutions and housing corporations as well as the fact that not all transactions are always public

#### **Figure 7.**

*Investment volume 2009-2015 in Dutch healthcare real estate by market participants (y-axis in millions). Source: Syntrus Achmea Real Estate & Finance & CBRE (2016). Syntrus Achmea Real Estate & Finance & CBRE (2016).*

and/or complete, we see that from 2013 to 2015 investment volume has tripled from around EUR 100 to EUR 300 million (see **Figure 7**).
