Historically investors have considered property within the primary health care sector as prime investments and doctor’s surgeries offered to the market on a 15 – 20 year sale and leaseback basis have achieved high values due to the NHS backed income. In many practices that income has been supplemented from the letting of space to 3rd party pharmacy operators. As a result the value of doctor’s surgeries has been largely insulated from the volatility of the commercial property sector and has continued to offer good returns to investors.
However, the increasing property values in the primary health care sector are resulting in a perceived lack of confidence amongst incoming doctors to commit to equity purchase. In addition to having to raise significant capital, incoming partners view a profession which is increasingly expressing concerns over the long term viability of the NHS.
This in turn is leading to growth in the number of medical practices, faced with a high level of senior GP retirement, having to rely upon an increasing number of salaried / locum GPs to allow surgeries to continue functioning. That has resulted in a number of medical practices, large and small, seeking to merge with other nearby practices to increase their patient list size and benefit from economies of scale and greater geographical coverage. Others, despite the lack of NHS grant funding, are investing in building new surgery premises or refurbishing / extending existing premises to combine services under one roof in an attempt to ‘future-proof’ themselves with high quality modern purpose.
In terms of valuation, the recent sales evidence is indicating an increasingly two tier structure between modern purpose-built surgeries which continue to achieve high values and older style converted surgeries attracting reduced values despite the yield. An additional feature is the high levels of existing interest only bank borrowing for some surgeries, resulting in negative equity in some cases.
It is therefore increasing important for medical practices to seek specialist advice and maximise notional rent income plus alternative income sources. Stratton Creber Commercial is proud to be the only specialist medical valuer on the Aviva Commercial Finance panel in the south west region offering specialist knowledge and over 20 years of experience of the primary healthcare sector.
Robin Wells BSc (Hons) MRICS
RICS Registered Valuer