Care homes continue to be in great demand and the need for more care homes is expected to grow in the years to come. Recent surveys reveal that more than 4 million ageing people in Germany would need care homes in the next twenty years.

The German nursing home industry has been growing rapidly because of the continuous increase of aging people in need of care. Currently, there is already a shortage of care homes in many cities. Homes with patient-centric and sustainable concepts have been desired and lack of proper facilities offers significant investment opportunities, in particular for real estate sector. However, a detailed knowledge of regional markets are crucial for investment decisions.

Public providers cover 5% of the market, 35-40% is covered by private providers, and the remainder, 55-60%, is provided by charity-based and religious non-profit organisations. All draw their revenues from a mixture of a mandatory national care insurance. The number of people in need of social assistance increases prices of nursing homes. Analysis shows that prices and quality do not only vary across nursing homes, but also across federal states and that quality and prices correlate positively.

It is anticipated that more than four million people will need care by 2038. Due to Germany’s rapidly aging population and the rise of demand for more medical care, care homes are considered an attractive investment as they offer higher and more stable returns. Therefore, aging population and the increasing popularity of outpatient healthcare services are leading many real estate investors to consider medical office buildings. There are substantial opportunities, but growth requires diligent work and profound understanding of local needs.

What is needed for the future?

Currently, Germany is running the risk of a shortage of modern care home facilities. By 2030, demographic changes will lead to a substantial increase in the number of people in need of care. And, according to a projection by the Federal Statistics Office, the number of people requiring care would rise to 4.2 million by 2038, and to 5.3 million by 2050.

The operators with the best long-term chances are those which can offer the entire range of care services such as  outpatient care, day care and short-term care, full time residential care, and assisted living. On the supply side, one of the main limiting factor is the availability of care nurses. The analysis reveal that the shortage of employees in the care sector could be as large as approximately 350,000 by 2030. This shortage of trained staff can mean that care service providers are not able to guarantee the required staffing levels. Given the need to maintain specific staffing levels for a care home operating license, this issue is a major factor for market participants.

Generally, nearly 60% of care homes and full-time residential beds are in the most populous states of North Rhine-Westphalia, Baden-Württemberg, Lower Saxony and Bavaria. It is noticeable that compared with the population over 80 years old, the availability of care beds is higher in Northern Germany than in the rest of the country.

There are basically the following three models for care services: Care at home, Semi-residential care, and Full-time residential care.

Overall, semi-residential and full-time care patients account for some 30% of all care recipients. The principal of “outpatient before inpatient” is designed to maintain the independence of the patient and avoid a greater level of dependence on care services. However, outpatient care can mean higher costs both for the patient and for the care insurer.

Cost side of Care Homes

Under German law, home operators are required to set out individually all the services they charge for. These are separated into costs for the provision of care (the daily care charge), costs for accommodation and sustenance (so-called “hotel costs”), investment costs and possibly a charge for staff training. Besides the hotel costs, patients have to pay for the investment costs in full. These investment costs are the property-related “rent” for the resident: among other things, they represent the costs of construction or for the acquisition of the home and for repairs and maintenance, including replacement costs for inventory.

The difference between the real costs of care and the funding provided by care insurance providers is called “the patient’s contribution” to care costs and has to be paid by the patients themselves. Since January 1st, 2017, the “standard patient’s contribution” used as the basis for calculating daily care home rates. The national average patient’s contribution for care services is about €19.00 per bed per day.

These cost positions are also important indicators and these costs might vary widely depending on the region, the size of the home, the service concept or the type of provider.

Investment costs

Investment costs mainly reflect the costs of building or acquiring the home and for repairs and maintenance, as well as the replacement costs for inventory. The reason for the investment cost of public sector and non-profit making providers being at the bottom end of the range, and lower on average, is probably that these have often benefitted from receiving building land for free or on favorable terms from local authorities and churches. Generally, the investment cost is in a range from around €12.00 – 24.00/bed/day, depending on the federal state and without any public subsidy for the costs of new-build.

Things to Consider 

Overall, the care services market is a market with good growth prospects, and therefore more investor are entering the market who are looking for sustainable investments. Still, there are several issues to be considered while making your investment decision.

– Regulations differ – Different areas have different regulations.

The regulations differ depending on where in Germany you are based, because federal law and state law might be different. It means that not every care home concept works in every region. Also, care homes need to meet sustainable investment standards which include single bedrooms, with an en-suite bathroom for just one resident, a care bath on each floor as well as a barrier-free structure. At present, it is only 30 percent of all care homes in Germany that meet these standards.

– Location selection – Following a demographic study of the local population and its needs, areas where a nursing home is needed should be identified.

For now, demand for care home places varies depending on location. In some more remote parts of Germany, both the wider population and the number of older people is decreasing, bringing about the prospect of pockets of oversupply of care homes, according to JLL research. You need to know when, where and how healthcare properties can be owned and operated to generate profitability. You should be careful to invest in assets that yield good returns. In this regard, choosing the right location and property is crucial as this is what you need to operate a care home sustainably and profitably.

– Selecting property – The construction, renovation or takeover of a property suitable for the intended activity, buying a property or constructing a new one.

Considering the small number of existing properties that are suitable for an investment, investors should be carefull about selecting a property. Constructing a new home is often the better alternative.” Because of the high average age of nursing homes, investment needs for their renovation are currently high.

– Management model – investor model (40%) or operator model (60%)

Out of 14.000 care homes in Germany, only 40 percent are managed based on an investor model. In all other cases (60 percent), the owner is also the operator.

– Care home or Assisted living – Care/nursing homes vs Assisted living

Nursing homes offer more medical care and personal assistance but less freedom. Assisted living facilities, on the other hand, offer less medical care but emphasize residents’ independence. Residents in a nursing home require around the clock care and monitoring. By contrast, residents in an assisted living community generally require supervisory care. So, assisted living homes aren’t required to have skilled nursing staff since the level of medical care isn’t the same as what nursing homes offer.