The total return on primary healthcare property in the IPD UK Annual Healthcare Index in 2009 was 8.8% year on year which compares favourably with the IPD UK All Property Index which rose by 3.5% over the same period. The wider UK commercial property market recovered in the second half of the year driven by an increased institutional demand for prime property. This recovery has continued in 2010 and we have seen net initial yields for All Property move down to 6.61% from a peak of 7.91% at the bottom of the cycle.

The primary care property market has once again proved to be resilient and valuations have improved in line with the property investment market. Although the primary care market has not experienced the valuation gains seen in the prime property sector over the past few months it has still, based on IPD figures, significantly outperformed the wider property market over the past two years. This is due to the long-term secure cash flows, strong counterparties and the level of rental growth achieved.

The new coalition government has restated its pre-election commitment to maintain NHS funding in real terms. In order to continue to protect and deliver the increasing demands on front line services this will require significant efficiency savings throughout the NHS. Primary care is well placed to deliver savings through transfer of services from secondary care, but it cannot do so from outdated premises. A survey commissioned by the British Medical Association in March 2010 found that 60% of GPs work from premises that were not suitable, highlighting the underlying demand and continuing need to develop the larger multifunctional primary care premises that the Fund invests in.