By Devina Rana, partner at McDermott’s London Real Estate Practice
We spend a great deal of time advising private equity sponsors on European real estate transactions from our London office.
Over the past few years, one asset class keeps coming back to the table – healthcare real estate. Sometimes the interest is tentative, other times it borders on bullish but it never quite leaves the conversation.
After attending the Investors in Healthcare Real Assets Conference in London, what struck us wasn’t just the optimism.
It was the sense that healthcare real estate has moved from being a non-core allocation to something far more central, and far more strategic.
This is not simply a story about yield. It’s a story about repricing, partnership and, frankly, reinvention.
A Defensive Sector – But No Longer Just Defensive
Healthcare has earned its reputation as one of Europe’s most resilient real estate sectors.
Over the past several years, it has delivered strong income returns with materially lower volatility than most other asset classes and in boardrooms, that stability matters.
But what makes the story more interesting in 2026 is not that healthcare is “defensive.” It’s that it combines predictable long-term income with capital growth.
Allocations across institutional portfolios are still relatively modest, typically in the low single digits. That leaves meaningful room for expansion as investors grow more comfortable underwriting operational and regulatory exposure.
And then there are the demographics. Roughly one – fifth of Europe’s population is already over 65, and that percentage is climbing steadily.
The 80 – plus cohort, the group that has the most specialised care demands, is expanding even faster.
From where we sit, the question is no longer whether demand will be there. It’s whether supply, particularly modern, compliant, ESG-efficient supply, can keep up.
From Property to Infrastructure
One noticeable shift over the last decade has been conceptual. Healthcare assets are increasingly viewed less as “real estate” and more as social infrastructure.
That distinction matters. Infrastructure capital has moved up the risk curve, competing directly with private equity for real assets that offer not just income, but operational upside.
Investors are no longer content with a passive rent cheque; they want to understand the care model, staffing dynamics, reimbursement mechanics and long-term sustainability of the operator.
In the UK especially, this is front and central. Public funding channels are under pressure.
At the same time, private pay models, including retirees deploying housing equity or employer – supported benefits, are becoming more prevalent. In certain markets, private pay revenue is perceived as more durable than stretched local authority funding.
The most sophisticated platforms are blending infrastructure – style stability with private equity-style operational engagement. That hybrid mindset is defining the next phase of the market.
Fragmentation: Opportunity and Friction
Europe remains a patchwork with regulation, with reimbursement and cultural expectations varying significantly country to country. Consolidation is happening, but mostly domestically.
For sponsors, the pan-European thesis is intellectually compelling due to its diversification, scale and capital efficiency. However, in practice, execution can be complex.
You need local regulatory fluency, deep operational understanding and, practically speaking, lenders that are comfortable with cross-border structures.
We’re seeing more international capital – particularly U.S. capital – looking closely at the UK and wider Europe. The opportunity is real, but the underwriting has to be granular.
Healthcare is not an asset class where you can afford to be superficial and downgrade the importance of operational expertise.
The Lease Model Is Evolving
One of the more animated discussions at the conference concerned lease structures. Traditional triple-net leases have long been the backbone of European healthcare real estate.
They provide predictable cash flow and insulate landlords from day – to – day operational volatility.
For many investors, that model still works but inflation and cost pressures have exposed the limitations of that rigidity, particularly where operators are under strain.
Increasingly, we are advising on hybrid structures, management agreements, turnover-linked elements, joint venture models and RIDEA lease structures. Importantly, the RIDEA leases allow REITS to partner with independent operators to manage senior housing or healthcare properties, which benefits the REIT by enabling them to share in the operational benefits of the business, as well as absorb downside risk.
All of these structures are recognising that they need to and must structure transactions so that they allow for better alignment between owner and operator.
In 2026, we expect capital to bifurcate:
- Core investors prioritising strong rent cover and covenant strength; and
- Core+ and value-add investors leaning into operational alignment and development-driven strategies.
Both approaches can work, but they require different skill sets and risk appetites, which means that there is room in the market for a variety of investors.
The Obsolescence Gap
If there is one issue that feels particularly urgent, it is obsolescence. Much of Europe’s existing care stock is ageing, both physically and environmentally.
At the same time, expectations are rising and medical advances focused on the ageing demographic are increasing life expectancy as well as the standard of living (whilst at the same time placing increased pressure on healthcare real estate).
In the UK in particular, a generation planning for retirement expects modern facilities, better amenities and higher – quality later living environments.
Governments are also pushing for more outpatient and community-based care models, moving away from expensive acute settings.
This focus requires new formats, new designs and integrated digital infrastructure.
Whilst the UK Government may be pushing for such facilities, whether they will be able to keep up with the demands of an increased number of CQC registrations is debatable with the waitlist for current applications often taking years.
Greenfield development is therefore re-emerging as a serious focus. New builds allow sponsors to embed operational efficiency, ESG performance and modern care models from day one.
And ESG here is not simply cosmetic. Healthcare buildings are energy – intensive assets where efficiency directly affects operating margins and asset value. Lenders and investors are scrutinising sustainability metrics as closely as rent cover ratios.
Capital Is Returning (Selectively)
The financing environment is improving as interest rates stabilize and transaction confidence is returning.
Specialist healthcare lenders remain active, but they are highly focused on operational diligence. In this sector, property value cannot be separated from operator performance.
Sale – and – leasebacks continue to feature prominently and forward funding for development is picking up. Competition, particularly from international REIT capital, is intensifying.
Scale commands a premium but interestingly, mid-sized operators can offer compelling opportunities for private equity sponsors willing to engage closely and build platforms.
This is an attractive prospect but aligning care quality standards, clinical governance and integrating healthcare professionals takes time and leadership commitment.
What 2026 Really Looks Like
From our vantage point advising sponsors and investors, healthcare real estate is no longer a niche defensive allocation. It is a core component of European real assets strategies.
The themes defining 2026 are therefore clear:
- Partnership over passivity;
- Operational understanding over pure covenant underwriting;
- Selective cross-border expansion grounded in regulatory depth;
- Modernisation and development to close the obsolescence gap; and
- ESG as a value driver, not just a reporting requirement.
Ultimately, this asset class underpins something fundamental: care for ageing populations. Long-term capital is increasingly aligning with long-term care outcomes.
There is significant opportunity for infrastructure and private equity investors willing to combine real estate discipline with operational sophistication.
Healthcare real estate is not just holding its ground, it is evolving and there is growing recognition that in healthcare, the real estate and the business are inseparable.
In our view, healthcare real estate is finally receiving the strategic attention it has long deserved.
