Is the Nordic care model the way forward for an aging world?
The Scandinavian cradle-to-grave model has evolved as a bright spot of activity – and is opening up new investment platforms for real estate.
It’s a challenge for many countries – how to house and care for an aging population.
As many governments, policy makers and healthcare providers grapple with this demographic time bomb, the Scandinavian cradle-to-grave model has evolved as a bright spot of activity – and is opening up new investment platforms for real estate.
According to a report by RREEF Real Estate, the 60-plus age group in Europe is set to rise by almost 28 million people between 2010 and 2020. And this will exacerbate an already chronic shortage of care homes. By 2025 JLL estimates 725,000 housing-with-care units providing 24 hour assisted care are needed to meet demand from the Baby Boomer generation.
“The entire segment is attracting more and more investors globally,” says Christian Hohenthal, Head of Capital Markets, JLL Finland. “In a time of low interest rates and volatility in stocks, this alternative segment is very stable.”
Because Nordic governments fund residential elderly care, investment opportunities in this region are among the most secure in Europe.
In Finland, the costs of residential elderly care are paid for by local municipalities but increasingly outsourced to private operators largely owned by private equity companies.
When they need it, an elderly person is given a voucher for residential care by the municipality in which they live. They can use this for a care home in that municipality or elsewhere in the country – but the municipality always picks up the bill. Sweden, Norway and Denmark have similar systems.
“In around 98 percent of privately operated care homes the money comes from the municipalities,” Hotenthal adds. “This gives the segment an almost-governmental credit rating because the municipalities are supported by the government, which isn’t the case in many other countries.”
The German, UK and French elderly care markets may be very active, with large transactions being carried out, but the Nordic countries have a unique combination of attractions.
Hohenthal explains: “The trend is towards outsourcing, the population is growing, and the population is aging. And even if, as has happened in the UK and Germany, a private equity healthcare operator goes bankrupt, the municipality is still obliged to provide the service until a new operator is found.”
“My forecast is that investment in this area is going to pick up significantly going forward as people understand it more.”
As the Nordic market opened up to privatization around 10 years ago, it gave investors the opportunity to start building up platforms in this segment. This is now reaping considerable rewards: The 2016 sale of 27 Finnish nursing homes for €155 million – the largest transaction of this type in Finland – attracted international interest from investors both in Europe and the US looking for platform entry in the market.
Sweden and Finland offer the biggest opportunities for cross-Nordic and international investors. While Norway and Denmark are also attractive, they are more difficult to enter and comparably expensive.
And it’s not just care homes catching the eye of investors: At the other end of the age spectrum, there are growing investment opportunities in kindergartens.
In Finland an increasing number of kindergartens are going into private hands as municipalities struggle with provision, especially in the bigger cities where the population is forecast to grow by as much as 10 percent in the next 10 years.
As investors increasingly seek out sale and lease back deals across the sector, it’s no longer just the young and the old benefiting from the Nordic’s cradle-to-grave model.