Real Estate Update: The Resurgence of Primary Care Centres
29 November 2016
Budget 2017 committed the Government to the highest ever spending on the health sector. Improved healthcare services and facilities are back at the top of the Government’s and the electorate's agenda. As part of that renewed focus and as outlined in the current Programme for Government, we expect to see a significant increase in the number of primary care centres being developed throughout the country.
Primary care comprises all of the health or social care services that you find in the community, outside of a hospital campus.
There are 92 centres currently in operation in Ireland. Of these, 45 were developed directly by the HSE and 47 were privately developed with approximately €19 million in annual rent being paid by the HSE.
In May 2016, an agreement was reached with the European Investment Bank for a €70 million loan to develop 14 centres throughout Ireland. The project is a Government-based public-private partnership scheme and will be delivered by a consortium comprised of Prime, Balfour Beatty and its investors Prime UK Holdings Limited and HICL Infrastructure Company Limited. All 14 sites have secured full planning permission.
Key factors for development
Two of the fundamental steps for developers are to secure a suitable centre location with planning permission that meets HSE requirements and to bring in the required number of local GPs as tenants. Access to funding is also vital to get projects up and running. According to a recent Bank of Ireland review of the sector, construction of these centres requires an average development finance loan of approximately between €3.5 million and €7 million.
The legal framework is often structured on the basis of an operational lease granted to the HSE by the developer of the centre. Some of the typical commercial terms for the lease arrangements with the HSE are as follows:
- The developer will lease the relevant areas of the centre to the HSE. The HSE typically requires 800 sq. m. of space for each primary care team.
- The lease will be for a minimum of 15 years and a maximum of 35 years with the option to renew at the end of the lease term.
- There will be no break clause during this term.
- The lease must reflect a significant discount on local market rents (to be independently assessed).
- Rent reviews, if any, during the lease will reflect a continuing market discount and will be based on CPI increases only.
- The lease may contain an option for the HSE to purchase the freehold from year 10 onwards.
- There will be no land swaps or contribution from the HSE to any third party developments.
- The optimum number of primary care teams to be located in an individual centre ranges from one to three.
The availability and feasibility of suitable site locations and access to adequate financing are critical factors to the continued growth of privately-developed primary care centres. It is also crucial that developers can demonstrate to the HSE and prospective funders that they can secure the required number of local GPs as tenants.
Recent newspaper reports highlight the growing interest from overseas developers, in particular, UK specialist developers such as Primary Health Properties and UK fund MedicX, who have both committed to several investment deals in Ireland. The HSE aims to have between 200 and 250 centres operating in Ireland in the coming years.
For further information, please contact a member of our Real Estate team.
The content of this article is provided for information purposes only and does not constitute legal or other advice.