06 Nov 2019
Strong demand and pockets of undersupply mean there are still significant requirements for investment in healthcare real estate assets at the ‘smaller end’ of the market across the sector nationally.
In healthcare generally, the lion’s share of spending goes to hospitals. Big-ticket government investment in public sector health infrastructure is routinely under the spotlight during state and federal budget reporting.
"In years gone by, general practitioners’ and childcare facilities were often converted houses and aged care facilities were typically multi-bed rooms.”
Although most of that investment is weighted towards larger public hospital projects in metropolitan areas, Australia’s health system needs ongoing investment in primary care infrastructure across the country. This includes medical centres and other assets such as aged care facilities.
Just as in the hospital sub-sector, part of the investment requirement arises from the ongoing need to replace old or even obsolete infrastructure. This is a key factor changing the nature of healthcare assets across the spectrum.
ANZ’s Head of Health, Richard Grayson, says in years gone by general practitioners and childcare facilities were often converted houses; aged care facilities were typically multi-bed rooms.
“New facilities across those health modalities are now invariably purpose-built structures. And these are the types of facilities being established by operators looking to capitalise on opportunities where there’s been underinvestment,” he explains.
Delivering services in the types of spaces that meet consumers’ needs is another underlying driver of this trend to upgrade.
Minding the gap
Demographics are always key drivers in healthcare activity. CBRE’s Head of Research, Bradley Speer, says the Greater Parramatta and Olympic Park Peninsula area will become a key driver of Sydney’s economic and population growth over the next decade.
“New infrastructure, including rail and light rail, and residential building construction will support the growing population in this area,” he says.
Speer says the southwest and northwest growth centres will also be areas with above-average population growth over the next decade: “The southwest growth centre will benefit from being located within proximity to the future Western Sydney Airport, with commercial uses driving employment growth in the area.”
Annual population growth of 4 per cent plus is forecast across three clusters, Northwest, Parramatta and Sydney CBD. Just as in many other parts of Australia, a larger proportion of Sydneysiders will be in the over 65 age cohort.
Tom Patrick, Partner at Barwon Investment Partners, provided some approximate numbers about what these projections mean for Sydney’s infrastructure over the next couple of decades.
“People over 65 years old see their GPs over two times more than younger Australians do,” he says.
“If you have about 500,000 people over 65 years old using five more consults each year, per person, that is approximately an additional 2.5 million consultations not currently needed that will be necessary in the future. That roughly translates to an additional 350 GPs.”
Patrick says converting that number into infrastructure means another 35-50 medical centres will be needed over the next decade to service that increased demand based on an average of eight to 10 GPs per medical centre.
“That new infrastructure is in addition to what is already in place,” he says. “At $A5-10 million for each of those medical centres, that is anywhere from $A175 to $A350 million investment in Sydney alone.”
By applying the same logic to other parts of the country - especially Melbourne and Brisbane - and to other types of healthcare assets outside medical centres, it is clear significant investment is needed in healthcare real estate assets outside of hospitals.
While some metropolitan areas, especially some inner city areas, may already be particularly well served, pockets of undersupply still exist in other geographies and specific sub-sectors across the country.
In some geographies, the real issue for service delivery is not on the demand side but on the supply side, Patrick noted.
“Operators face challenges in attracting staff to particular areas - and that is a real issue for them to address,” he says.
Meanwhile investors looking to acquire healthcare real estate assets are also increasingly competing with operators given the favourable outlook for the sector and asset characteristics, according to CBRE’s Healthcare & Social Infrastructure director Sandro Peluso.
“We are seeing more and more investors turning away from traditional residential or retail-based property investment. They are recognising the significant benefits within the wider commercial sector, particularly healthcare,” she says.
“The healthcare sector is one of the fastest growing sectors in Australia and investment in healthcare real estate assets not only offers a potential return on investment for astute investors but also an easy asset to manage.
“Investors recognise this class of asset usually involves an attractive long-term lease due to the tenant’s investment in a specialised fit-out and their location being important to their patients.”
Glen Fisher is Associate Director for Health at ANZ
The views and opinions expressed in this communication are those of the author and may not necessarily state or reflect those of ANZ.
06 Nov 2019
02 Jul 2019