The HypZert Social Real Estate expert group has released the sixth edition of its specialist publication, "Valuation of Care Homes". This completely revised study analyses current market changes and offers appraisers, financiers, investors and other market participants a precise basis for valuing inpatient care facilities. Care homes are operational properties whose economic success is significantly influenced by the respective operation. Various factors such as demographic developments, legal frameworks, construction costs, financing options, skilled labour shortages and the situation in the operator market directly impact property value.
Silke Rumetsch FRICS, responsible for group-wide property management at VITREA and a member of the HypZert Social Real Estate expert group, stated that care properties remain a socially indispensable asset class with strong long-term demand. However, she also emphasised that operation and valuation have become more challenging, as economic, regulatory and operational factors are increasingly interconnected. The updated study takes this development into account and provides appraisers with reliable technical information and support for accurate valuations. The HypZert Social Real Estate expert group, founded in 2005, is regarded as an initiator for the development of valuation standards in the social property sector.
Increasing Space Requirements and Economic Bottlenecks
The current market analysis highlights significant challenges. At the end of 2023, approximately 5.7 million people in Germany were in need of care. According to forecasts by the Federal Statistical Office, this figure will rise to around 6.8 million by 2055. By 2040, approximately 322,000 additional inpatient care places will be required. The new build and reinvestment demand for this is estimated at 81 to 125 billion EUR. However, economic conditions are making the necessary expansion of provision difficult. Construction costs for new care homes have risen significantly in recent years and in many places exceed 250,000 EUR per care place. The refinancing of investment costs through care rate legislation often cannot keep pace with this development, leading to funding gaps and delaying both new construction projects and necessary modernisations of existing facilities.
Another significant factor is the persistent shortage of skilled labour, which increases pressure on the sector. A supply gap in care already exists today, which is likely to widen in the coming years. Against this background, replacement new builds are gaining in importance, as these can take over existing resident and staff structures, thus presenting lower start-up and operational risks. Furthermore, increasing demands on living quality contribute to sustainable market changes. State regulations to increase single room quotas mean that many older facilities are in need of modernisation. However, extensive renovations can result in the loss of grandfathering provisions and a reduction in the number of care places. This often creates an economic dilemma for owners and operators between necessary investments and their refinanceability.
Updated Key Figures for Valuation
The updated study has been comprehensively revised and provides updated market and valuation key figures. The authors point out the necessity of careful analysis in every valuation. This must comprehensively consider the property and the care operation, particularly the sustainable occupancy rate, room and area quotas, possible state-specific retrofit obligations, and the economic effects of different refinancing regulations.
Reiner Lux, Managing Director of HypZert GmbH, emphasised that an accurate valuation of care home properties today requires more than just an analysis of the property itself. He explained that only the interplay of location, operator quality, regulatory frameworks and economic viability enables a reliable valuation. The updated study by the expert group provides new key figures and practical recommendations for action for this purpose.
