New guidance brings medical centre valuation up to date

Regulation of UK medical premises and the way the health market operates have evolved significantly since 2010, when the previous edition of RICS' Valuation of medical centre and surgery premises was published.

Given the complex interaction between NHS frameworks, practitioner needs and evolving design standards, valuation in the primary healthcare property sector requires specialist expertise. Numerous public stakeholders rely on the document, so it needs to be fully up to date.

To ensure that valuers have the necessary expertise, RICS has recently published an updated professional standard.

As crucial primary care facilities, medical centres provide local communities with a range of essential services including general practice, dentistry, physiotherapy, pharmacy and minor surgical procedures.

Investor appetite for stable, secure returns has increasingly seen them look to the healthcare sector, while this asset class often fulfils their environmental, social and governance (ESG) criteria as well.

With quasi-government-backed tenancies in the NHS and long leases, along with rent reviews linked to market rents or inflation, primary care premises are well placed to benefit from this interest.

Further growth in demand for medical centres is anticipated thanks to the increasing healthcare needs of an ageing UK population. Moreover, the NHS Long-term plan focuses on increasing investment in primary care infrastructure, with the aim of improving quality, efficiency and access.

Key updates and considerations include the following.

• Renewed focus on the NHS framework: the standard outlines the current NHS structures in England, Wales, Scotland and Northern Ireland, alongside the National Health Service (General Medical Services – Premises Costs) Directions 2024 and their equivalents in other UK nations. Understanding these frameworks is paramount for accurate valuation, particularly when it comes to rent reimbursement and development approvals.
• Emphasis on design guidance and obsolescence: recognising the rapid evolution of healthcare building design – focusing on patient experience and wellbeing, the integration of technology, sustainability and environmental considerations, and social care, digital health integration – the standard underscores the importance of complying with Department of Health and Social Care guidance. It highlights how non-compliance can significantly affect value, necessitating a thorough assessment of obsolescence, flexibility and the potential for future adaptation.
• Growing influence of sustainability and ESG: the recently updated RICS Valuation – Global Standards (Red Book Global Standards) require valuers to consider significant ESG factors at all stages of real-estate valuation. Other relevant statutory requirements include the NHS’s net-zero targets and the NHS Net-zero building standard, the latter now including a section dedicated to the way ESG considerations affect both rental and capital values, as well as obsolescence risks.
• Refined guidance on basis of value and comparable evidence: the updated Valuation of medical centre and surgery premises confirms the appropriate basis as usually being market value, and cautions valuers against relying unduly on actual-cost rent or current market rent reimbursements through the NHS because these are individual contractual arrangements that may be terminated on the sale of properties. The standard offers guidance on sourcing and analysing comparable rental evidence, highlighting the need to look beyond indexed reviews and consider the wider commercial market as well as the specific circumstances of each comparable.
• Expert insights and collaboration: the updated standard draws on the in-depth expertise of a range of professionals from across the NHS, private practice, developers, investors and government bodies. This expert group was chaired by Medical Premises Consultants director John Hearle, who oversaw the previous edition. The standard was also shaped by a public consultation of the draft in autumn 2024. This collaboration helped ensure the guidance is practical, relevant and accurately reflects the nuances of the sector and the views of the market.

Other notable changes include:

• the addition of designated appendices for Scotland, Wales and Northern Ireland, highlighting key variations in guidance from England
• further guidance on the practice of top-up rents in the sector
• updated measurement practice in the sector
• updated guidance on the valuation of co-located pharmacy rentals
• signposts to relevant updated RICS valuation guidance
• signposting of updated RICS guidance on discounted cash flow.

It will also help them practise in an efficient and consistent way, informing their decisions and the effective management of this important and growing asset class.