Healthcare real estate investments in Germany – opportunities and challenges

The German real estate market continues to be a strong focus for (international) investors. According to CBRE, a transaction volume of around €111bn was achieved in the real estate investment market in 2021, which corresponds to an 40% increase compared to the previous year. International investors accounted for a market share of around 32%.

The importance of healthcare properties is growing within the German real estate investment market. In 2021 healthcare properties worth more than €3.7bn were sold. The asset class thus experienced another record year, even compared to the already outstanding years of 2016, 2018 and 2020. Healthcare real estate has clearly become a firmly established asset class. New investors are entering the market. According to a recent market study by BNP Paribas, the overall prime yield for healthcare real estate was approximately 4% overall, which is considerably higher than the prime yields for logistics (approximately 3.5%), offices in the top seven cities (approximately 2.6%) and retail parks (approximately 3.5%).

Focus on healthcare real estate

The term ‘healthcare real estate’ includes in particular nursing homes, senior living facilities, clinics, rehabilitation facilities and medical care centres.

Even in the coronavirus pandemic, healthcare real estate has proven to be a crisis-proof asset class that is relatively independent of economic trends. Like logistics properties and food markets, they are an integral part of the provision of public services and as such indispensable. Care facilities were therefore open for use throughout the peak phase of the coronavirus pandemic. The need for care does not decrease in times of crisis, but rather increases. A block on new admissions to protect existing residents was largely avoided by taking appropriate protective measures. Extraordinary additional expenditure and reduced revenues, eg costs of maintaining bed capacities, were cushioned by the Covid-19 Hospital Relief Act, which covered not only hospitals but also other healthcare facilities such as nursing homes.

In addition, demand looks set to increase in the long term. Falling birth rates and rising life expectancy are leading to a serious shift in Germany’s age structure. According to a study by the German Property Federation (ZIA) in co-operation with IREBS, the proportion of citizens over 80 will equal up to 13% of the population by 2060. Older people need more care. In the age cohort between 75 and 84 years, about 16% need care, while this figure increases to 44.5% in the 85-90 age cohort.

Finally, healthcare real estate is also an excellent asset class from the point of view of social impact investments, ie sustainable investments taking ESG criteria into account, which – depending on the concept – can be both sustainable and ‘social’.

Special legal requirements

Building requirements

Nursing home transactions account for the largest share of the market, although alternative living concepts such as assisted living are showing significant growth. Nursing homes in particular are regulated by building law. Almost all of the 16 federal states have enacted state home building codes that regulate building requirements. The idea behind this is to enable people in need of care to live in dignified and age-appropriate conditions.

This concerns in particular the number of care places per nursing home, room size and the number or ratio of single and double rooms.

The federal system in Germany has led to deviating regulatory frameworks. In Baden-Württemberg, for example, a single room quota of 100% and a home size of a maximum of 100 nursing places must be observed, while Schleswig-Holstein stipulates a single room quota of 75% and in Rhineland-Palatinate there are no strict requirements at all in this respect.

When purchasing a care property, it is therefore of particular importance to check exactly which building requirements apply – taking transitional regulations into account if necessary – and whether they are complied with. In the case of new buildings, it can usually be assumed that the requirements of state home building law have been complied with. In the case of existing properties, however, violations are not uncommon.

Forward deals

Healthcare properties are being sold at increasingly early project stages. In view of the high attractiveness of this asset class and the growing circle of investors, a large proportion of existing properties of good quality have already been taken off the market. Investors are therefore increasingly focusing on purchases at early project development stages, ie forward deals.

Purchase agreements for the acquisition of development projects must be carefully drafted. They should include, for example, a precise definition of the purchase object in the form of a detailed construction description, the buyer’s rights to co-operation/information and to request alterations, a co-ordinated timeline, especially with regard to the seller’s construction obligations, hedging/sanction mechanisms in the event that agreed milestones are not met, a balanced warranty regime and careful tax structuring (eg with regard to VAT, trade tax, construction withholding tax and – in the case of foreign seller companies – withholding tax in accordance with s50a(7) of the German Income Tax Act).

If the purchase price is paid in instalments according to the progress of construction (forward funding), provisions must also be made in the case of ‘stuck projects’, ie in the event that the seller cannot complete the project, for example due to insolvency. In this respect, purchase price instalments are usually agreed which do not exceed the value of the purchase object (including the construction works rendered at the respective point in time). In addition, the buyer’s right of entry into the construction contracts/general contractor agreement is important. From an investor’s perspective, it is critical that they can take over the project if the seller cannot finish and complete the project with the outstanding purchase price component. A withdrawal scenario is also usually provided for, but is difficult to adequately secure in practice, as the purchase price instalments are already invested in the property.

Lease agreements

Healthcare properties are operator properties. Therefore, the content and quality of the lease agreements are of particular importance and, above all, have a direct impact on the property value.

If a property is acquired as part of a forward deal, a buyer can often still influence the content of the lease. This is usually not possible with existing properties. Therefore, legal due diligence is of particular importance. What is the remaining term, does the lease contain early termination rights or breaches of the relevant written form requirements for leases that may entitle both parties to early termination? How is the responsibility for maintenance regulated between the parties?

The reporting obligations of the tenant are also very important. The landlord should have an insight into the tenant’s business performance in order to meet their information requirements vis-à-vis their banks, investors and property valuers. Business management evaluations, occupancy statistics, copies of utility contracts (Versorgungsverträge) – the information package should be carefully co-ordinated. Finally, the landlord should also have access to the tenant’s data in order to be able to check and assess compliance with sustainability criteria.

This aspect is of particular importance for ‘green’ investments that want and need to prove their sustainability and in particular their compliance with ESG investment criteria.


Healthcare real estate is a crisis-proof and – including from an ESG perspective – highly attractive asset class with continued significant growth potential and investment opportunities.