This article is from the Australian Property Journal archive
THE healthcare property sector is bound for further growth in the new year, with investors remaining confident despite approaching challenges in the broader economic landscape.
According to Knight Frank’s Global Healthcare Report, investors are confident in long-term opportunities in the sector, with care-related real estate reaching $38 billion in the year to June 2023, or 4.3% of total global real estate investments.
This growth reflects the shift towards an ageing global demographic, with demand expected to soar for elderly care beds and full-time nursing care in specialised facilities.
Globally, North American capital was the greatest contributor to the global healthcare sector in the year to June, at almost 68%.
In Australia, the healthcare sector performed second only to industrial, with average capital growth between 2017 and 2022 per annum at 6.8%, to industrial’s 10.7%.
“Institutional investment in Australia’s healthcare and life sciences sectors has gathered significant momentum in recent years, driven initially by domestic investors seeking defensive assets, and now sees strong market participation by regional and global sector specialists and their capital partners,” said Sam Biggins, national head of healthcare and life sciences at Knight Frank, Australia.
Across the country, healthcare and health-related expenditure makes up more than $241 billion each year or 10.5% of Australia’s GDP.
An estimated 73% of this is provided by the commonwealth and state governments, with around $17.5 million of the remaining $65.3 billion spent by private health insurers.
“The significance of this expenditure to healthcare real estate in Australia cannot be understated, and when considered in tandem with the fact that 23% of the population will be over 65 years old by 2062, provides strong support for investment across all subsets of the sector,” added Biggins.
Australia’s securitized healthcare real estate comprises approximately $22 billion in assets, with the major players including NorthWest Healthcare REIT, Australian Unity, Dexus and HealthCo.
With specialist asset managers including Centuria, RAM, Elanor Investors and Barwon Investment Partners.
“A number of these groups have progressed from single asset, syndicate-style vehicles targeted at HNW private investors and are now securing mandates from global institutional and sovereign wealth capital partners including MSREI, PNB and GIC,” said Biggins.
“The portfolio composition of the smaller managers is maturing from smaller primary care and allied health assets to be more reflective of the portfolios of the larger institutional and global investors, with assets such as mental health, day, short-stay and tertiary hospitals.
“In 2023 we have begun to see capital recycling occur with a number of primary care assets being placed on market to fund development of larger precinct-style assets.”
Over the 12 month period, the senior living sector in Australia continued to experience strong demand, as the over-65 population grew ahead of new supply across land lease communities (LLC), retirement villages (RV) and the aged care (RAC) sector.
“Affordability is becoming critical, and as such the market is attempting to respond, with LLCs in particular becoming more popular and significant M&A activity occurring across the sector,” added Biggins.
Biggins noted major recent transactions such as Swedish-based EQT Partners snapping up Stockland’s retirement portfolio for $987 million in 2022.
With Stockland having changed its senior living focus from RVs to LLCs, after acquired 3,800 sites from Halcyon in July 2021 for $620 million, prior to this divestment.
In addition to recent M&A activity, with Bain Capital acquiring the listed 6,500-bed Estia Health platform for $838 million in August 2023, with Estia Health shareholders voting in favour of the proposed acquisition earlier this month.
“The aged care sector continues to face headwinds, particularly due to staffing availability and operating costs,” concluded Biggins.
