Patrick Webb, senior director at CBRE, looks at why the private hospital market is thriving against a backdrop of rising construction costs and a forecasted increase in tender prices

Patrick Webb

A recent review by the Building Cost Information Service (BCIS) highlights significant challenges in the construction industry.

The BCIS forecasts a 17% rise in construction costs and a 15% increase in tender prices over the next five years.

And traditional real estate sectors are struggling with these escalating costs, making projects unfeasible due to soaring rents that occupiers can’t afford.

In contrast, operational real estate is thriving.

Strong performance in underlying occupier businesses allows for higher rents than those typical in traditional sectors – often based on a stabilised EBITDARM at benchmark ratios.

One particularly-promising operational sector is the private hospital market.

With the UK facing an aging population and increasing chronic health conditions, private hospitals and clinics are becoming essential to the public health system.

And this has accelerated as the NHS deals with record waiting lists.

Private hospital developments are increasingly viable, showcasing the potential of operational real estate, despite broader construction challenges

Earlier this year, the Prime Minister announced a new agreement to enhance NHS access to private hospital resources, a vital step in tackling the nation’s healthcare issues.

These favourable conditions have helped improve operational performance, with the private acute market seeing year-on-year revenues rising by £796m, a real-term growth of 6.2%.

This positive environment is supportive of stronger rents, with some hospitals achieving rent cover ratios above <5.0x.

For the real estate sector, healthcare is evolving from a niche investment to a core component of diversified portfolios, reinforced by current market trends

Consequently, private hospital developments are increasingly viable, showcasing the potential of operational real estate, despite broader construction challenges.

Moreover, there is renewed interest from institutional and other investors in healthcare infrastructure as a resilient long-term asset class.

Key fundamentals include secure long leases, strong tenant covenants, and rising demand.

This theme is supported by the recent CBRE healthcare sentiment survey which identified a significant increase in appetite for healthcare investment in 2025.

For the real estate sector, healthcare is evolving from a niche investment to a core component of diversified portfolios, reinforced by current market trends.

And, for investors considering opportunities in this area, against the backdrop of a recovering market, now is the time to engage.