As Australia’s population ages, the notion of private hospital real estate as property investment is gaining traction. With returns over 25% in 2017, the sector outperformed offices, retail and industrial businesses, according to REINSW.
CBRE Senior Research Manager Danny Lee says that half of all medical treatments carried out in private hospitals were meant for 65 years old and above. He also pointed out that longer life expectancies will allow for more growth in the private healthcare sector.
“As the share of over 65s increases over the next two decades – growing from 15% of Australia’s population to 18% by 2027 – the impact on real estate is expected to be significant,” Lee said.
Notably, private hospital real estate investments recorded an average return of 16% per annum over the past decade, with 2017’s figures even stronger at 25.4%. This is higher compared to the 13.4% revenue of the office market, often cited as the best performer among key sectors.
Over the past 15 years, the number of private hospitals in Australia has also grown from 509 to 630. The number of public hospitals, meanwhile, has trended lower. Private hospitals made up 47% of total hospitals in 2016, up from 40% in 2000.
More importantly, the hospital sector has shown greater resilience during those times when economic instability was significantly felt, compared to office, retail and industrial.
Higher demand for aged healthcare in the country reduced industry yields from a peak of 9.4% to 6.4% in the last quarter of 2017, a record low.
Those who are looking to invest may want to capitalise on healthcare assets. Not only does it offer higher returns in a lower global growth environment but is also backed by strong population growth, an aging population and stable economy. “This is especially true for institutional investors looking to shift their focus to alternative classes that offer higher returns,” REINSW noted.
The growing demand for newly built and modular designs that meet higher technology requirements opens great opportunities for both development and investment in the sector, according to REINSW.
Additionally, the ownership structure of hospital resources has evolved to operators now opting for sale-and-leaseback agreements. This kind of ownership also allows the former to focus on the main business and still maximise value for expansion plans in the future.
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