Investing in GP Medical Centres in the UK: A Strategic Move.
A General Practitioner (GP) medical centre property typically consists of a GP surgery, alongside other ancillary medical services, such as a pharmacy or dental practice. Rents on GP surgeries are paid by the NHS, while the rents from ancillary service providers are typically paid by private healthcare corporations. The allure of these properties lies in their consistent returns and vital function within local communities. Heading into the years 2024/2025, the healthcare sector in the UK remains an enticing prospect for investors, with GP medical centres emerging as lucrative assets..
The Appeal of GP Medical Centres
GP medical centres are at the forefront of the NHS, providing crucial healthcare services to local communities. The need for additional space is driven by a population that is growing, ageing and suffering from increased chronic illnesses, which is placing a greater burden on healthcare systems in the UK. With an ageing demographic and heightened health consciousness following the pandemic, the demand for these services has escalated. This trend has sparked increased interest from investors, who view GP medical centres as robust investments offering secure, long-term income streams that are typically linked to inflation indices.
Market Trends and Investment Activity
Approximately one-third of the UK’s current primary care estate is in need of replacement and upgrades to meet a growing demand. Industry forecasts suggest that investment in the UK’s healthcare sector will remain strong in 2024, buoyed by limited suitable stock, solid demand from tenants, and the chance to integrate Environmental, Social, and Governance (ESG) principles. The attractiveness of these investments is further enhanced by extended lease durations and rent reviews tied to inflation, providing a buffer for investors against the uncertainties around living costs and market fluctuations.
Rental trends within the GP sector remain constant and stable over long periods. As shown in the chart below rental growth at rent reviews have remained positive and have moved in line with inflation.
Figure 1: Medical GP Centre Rental Growth, 2008 – 2021
Source: Avison Young, annual rental growth versus inflation, 2008 – 2021
Rental Funding
Many GP surgeries and medical centres are built and/or owned by private individuals or companies. Under the current system of rent reimbursement funding, primary care is viewed as a government-backed long-term income stream by both investors and their banks and a “safe haven” in the eyes of the property sector.
It has become more attractive in recent years where other sectors have faltered. The advantage of primary care over other property investments is that medical centres are built to meet needs identified by the NHS. Therefore, they are almost always pre-let rather than speculatively developed and are usually purpose-built with flexible and adaptable layouts. The medical sector still uses 20 year or longer leases, usually without breaks, unlike those in other commercial uses, and there has been a history of rental growth.
Typical Lease Terms
- Government backed income
- 10 plus year leases
- Fully repairing and insuring leases
- Rent reviews linked to RPI or OMR
Strategic Considerations
In the pursuit of investing in GP medical centres, it is crucial for investors to consider strategic factors such as the centre’s location, the calibre of tenants, and the specifics of lease agreements. There is a growing expectation that many services in the medium term will progressively move from hospitals to primary care settings, necessitating substantial investment in facilities to accommodate these changes and alleviate the pressure on secondary care in the years to come. Properties situated in regions experiencing population growth and a shortage of healthcare facilities are particularly sought after. Furthermore, leases with NHS-affiliated entities or esteemed private healthcare providers enhance the security and reputation of the investment.
The Role of ESG in Investment Decisions
The importance of Environmental, Social, and Governance (ESG) factors in investment decisions is now well established. GP medical centres that showcase robust ESG qualities, such as energy efficiency and a positive social impact, are increasingly appealing to investors who prioritize steady returns alongside sustainability and community benefits. Investment in a GP medical centre provides a positive social impact through enhancement of experience for people using the facilities, expansion of healthcare provision locally, and making healthcare more accessible to those that need it most.
The Future Outlook
The future landscape for investing in GP medical centres in the UK is promising. With a focus on strategic location selection, tenant quality, and ESG integration, investors can capitalise on the sector’s growth potential. As healthcare needs evolve and the population ages, GP medical centres will likely remain a vital component of the UK’s healthcare infrastructure, offering investors both financial rewards and the satisfaction of contributing to public health and well-being.
Investing in GP medical centres in the UK during 2024/25 is a strategic move that promises not only financial returns but also the opportunity to contribute positively to society through supporting essential healthcare services. With careful consideration of market trends, strategic factors, and ESG principles, investors can make informed decisions that yield long-term benefits.
In summary, while GP medical centres offer stable, long-term returns, investors should carefully evaluate risks and implement strategies to mitigate them. Collaborating with experts and staying informed about industry trends is key to successful investment in this sector
Investing with SIRE Capital Partners
Working with a specialist healthcare investment manager will ensure your objectives are well understood. In the current market it is important to work with specialists that can produce results based on the most up to date, informed and educated views. Small incremental changes to terms can lead to larger variations in expenses and outcomes. We manage our clients risk exposures across the entire investment process. This covers all aspects of transaction management from deal origination, detailed underwriting, post due diligence checks, and ongoing asset and property management
Patrick Ryan is a Principal and Co-founder at SIRE Capital Partners, working on Deal Origination and Asset Management.
Patrick has spent 20 years in the property sector in London.
His first foray into the sector was in 2003 when he co-founded a mezzanine finance business that focused on lending to property developers in and around London. Following this he headed up SIRE Properties, a healthcare focused asset management firm. Patrick has now co-founded SIRE Capital Partners that has expanded on his healthcare asset management focus to take in broader services to include brokerage and capital advisory.
