Rise in Healthcare Property Investment

November, 2019 – The burgeoning demand and securitisation of Australia's healthcare assets

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The healthcare property sector has stepped into the limelight, offering attractive yields and low income risk in a market underpinned by a significant driver; our ageing population.


Relative compression of Australia’s core property class returns coupled with a ‘perfect storm’ of investment drivers has triggered unabated demand for local healthcare assets. The healthcare property sector has stepped into the limelight, offering attractive yields and low income risk in a market underpinned by a significant driver; our ageing population.

Existing institutional grade investors are capitalising on a traditionally fragmented market, securitising assets which are increasingly positioned within both passive and active investment vehicles. Surging demand is primarily targeting quality investment grade assets including private hospitals, day hospitals, residential aged care facilities and related medical infrastructure.


Key Players

  • Vital Healthcare/Northwest
  • Australian Unity
  • Barwon Investment Partners
  • Dexus
  • Centuria Heathley
  • Cromwell/LDK Healthcare
  • Arena REIT
  • AXA IM/Grosvenor



We foresee continued consolidation and development of such assets, with supply to be driven by existing investors and new market entrants. Positive market fundamentals, an attractive demographic outlook and high comparable yields are driving domestic and foreign institutional investment into this rapidly growing property sector.


Laila Burnet

National Director - Health, Aged Care & Seniors Living

View Profile > VIC

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Key Investment Drivers


    The shifting demographic landscape is increasing consumer demand for healthcare services and requires continued public and private sector expenditure.


    A historically ‘recession-proof’ sector offering high income certainty via long WALEs secured by proven tenants, consistent rental growth and minimal incentives.


    The reduced cost of capital is enhancing returns for local and global investors.


    Increasing foreign interest due to the attractiveness of local yields compared to those overseas and lower cost of investment due to the weaker Australian dollar is redirecting a portion of demand previously focused on external markets.

1.Ageing population and demographic outlook

Australia’s demographic profile is projected to see further ageing over the next decade, with continued population growth being heavily skewed toward net overseas migration (73.0% of the total increase), rather than natural increase (27.0% of the total increase) according to the ABS (September 2019).



Population Forecast (70 yrs +) – Annual Growth

  • The growth of over 70‘s is expected to peak in 2027 before easing for all states, with a further increase between 2057 and 2066.
  • Despite a slight decline in Australia’s overall private hospital insurance coverage ratio, APRA has reported a steady increase in hospital treatment episodes and premium revenues over the FY19. Government has continued to generate incentives to lift the overall coverage ratio, particularly in the sub-30 year old category, with the aim to reduce mounting pressure on the public healthcare system.
  • The risk to continued growth is underpinned as medical advances result in people living for longer.
  • Gross value added (GVA) for the healthcare and social assistance industry is predicted to continue to exceed forecast GDP growth by circa 60% when annualised up to the period 2023-24 according to IBIS World (March 2019).
  • Mounting demand for private hospital and particularly aged care beds, will require significant development outlay to enable adequate supply in the medium-to long-term.



Australia is forecast to see population growth of 8.6% overall and 19.50% for people aged 70 years and over between 2017 and 2022.

2.Favourable asset class fundamentals


Existing healthcare assets currently attract significant interest from institutional investors, including healthcare focused funds and fund managers looking to diversify core asset portfolios with intent to decrease overall risk and boost long-term investment returns.

  • Healthcare assets generally hold a longer weighted average lease expiry (WALE) compared with traditional investment asset classes. As shown in the chart overleaf long WALE investments are perceived as being less exposed to adverse economic conditions and therefore present with a low risk profile. Purpose-built developments and fit outs encourage long-term tenant occupation and consistently have a high probability of lease renewal providing relative income certainty.
  • Increasingly, leases provide for fixed annual reviews that typically provide an attractive margin above long-term CPI forecast growth.
  • Compared with core asset classes, lease incentive costs are minimal, which acts to preserve initial investor returns.
  • Further cost consolidation, technological advancements and advantages brought on by analysis of big data are benefitting operators and service providers, increasing patient treatment and turnover efficiency.
  • Healthcare has become a growing substitute for traditional retail tenancies. Total floor space dedicated to health and wellness uses has increased over the last three years in 60% of Australian shopping centres according to Urbis.



Day hospitals are an increasingly attractive asset sub-class, becoming more efficient and in turn
allowing higher patient turnover compared to overnight hospital stays.

3. Low cost of capital

Low interest rates are driving down the cost of debt and enabling investors to pay higher prices for assets. For healthcare assets, investors are able to source all-in-debt at record lows from Australian banks and lower from foreign banks.

A consistent differential on the debt component is continuing to present accretive investment opportunities. Our research indicates the cost of debt reduced approximately 50 to 100 basis points over the period between FY15 and FY19. With another interest rate cut likely, the cost of debt is expected to fall further in the short-term further enhancing returns for healthcare assets.


Record low interest rates are encouraging consistent capital growth, coupled with yields offering investors resilient double digit returns.

4. Comparable foreign yields and the weaker dollar

Total proposed investment into the Australian healthcare sector recorded by the Foreign Investment Review Board of Australia (FIRB) show healthcare reflecting a significant increase in the order of $3.7billion between FY17 and FY18.

The FIRB forecasts the health sector to continue to see significant activity over financial years 2019 and 2020 according to their latest annual report released in February 2019.

Canadian investment company Brookfield Business Partners’ takeover of Healthscope ranks globally as the fourth largest healthcare transaction in FY19 according to Bain & Co.

Further weakening of the AUD against other major currencies and low cost of debt in many overseas countries is likely to encourage increased foreign investment into Australia and increases competition for healthcare providers and real estate.




There has been a significant firming of yields in the wider healthcare property market, as increasingly bullish transactions are reflective of heightened market awareness and the comparative returns offered to investors.

Key players and market returns

We provide a current and retrospective view of the market’s key healthcare-focused managed funds and trusts, having analysed investment volumes and returns as at FY19.

  • Most funds included in the analysis were seeded from circa 2017 onwards, excepting Barwon Investment Partners and Centuria Heathley, indicating a surge of recent market entrants.
  • The funds hold strong intentions to increase their asset footprint, both for the acquisition of existing assets and the development of purpose-built properties.
  • Market activity has grown significantly over the last few years and is projected to increase further, with recently reported investment intentions and pre-commitments listed below:
    • ISPT has been given a $200 million mandate to create the HESTA Healthcare Property Trust. The fund will pursue investment opportunities in the residential aged care, private hospital and general medical sectors.
    • QIC has announced intentions to invest in the healthcare sector via joint ventures with US healthcare investment entities.
  • Total funds under management by key market players have increased by circa 210% over the five-year term to June 2019.



Traditionally core focused investors previously adverse to alternative assets, are turning their attention to the healthcare sector, seeking to benefit from secure long-term returns.

Further to the market snapshot provided, we have undertaken a sample analysis of different investment vehicles as listed below:

  • Australian Unity Unlisted funds under management including retail and wholesale trusts.
  • Vital Healthcare/NorthWest Healthcare Properties NZX listed fund comprising Australian and New Zealand properties.
  • Arena REIT Diversified ASX listed A-REIT containing childcare and healthcare properties.

Analysis of listed fund data captured between FY14 and FY19 reflects a consistent trend of sharpening yields across the portfolios. As illustrated, steady growth in acquisitions and valuation figures reflect an average year-on-year book value increase of circa 15-28% per annum across the analysed funds.

Yield compression in core asset classes has resulted in private investors, syndicates and institutional investors turning to alternative asset classes on the hunt for higher returns. Yields for CBD Office, some Shopping Centre types and Industrial assets are projected to continue to decline to March 2020, before stabilising according to m3property research. Healthcare assets enable institutional investors to diversify existing portfolios and achieve comparably strong returns on investment.

There is a notable positive correlation between core asset classes and healthcare yields, as well as the 10-Year Bond Yield. This means that historically the healthcare sector moves in the same direction as the core investment sectors and 10-year bonds, i.e. as yields tighten in the other sectors so too do healthcare sector yields.

Following recent interest rate cuts and the entailing compressions in the cost of debt, margins between average healthcare asset yields, albeit reduced, is spurring ongoing investment activity and confidence. Average healthcare yields have compressed from 6.4% to 6.1% over the last 12 months.



Recent years have seen significant market player activity, with existing investors and new market entrants eager to acquire proven assets.


Australia’s healthcare asset market is experiencing significant changes, with a raft of emerging market entrants, both local and international, bolstering a movement towards increasing securitisation and consolidation of a traditionally fragmented market.

Over the short to medium term we expect:

  • Further weakening of the AUD, which is likely to encourage increased foreign investment.
  • The declining cost of capital is set to continue driving transactions of existing stock and a healthy development supply pipeline.
  • Healthcare returns are expected to remain an attractive alternative to traditional core asset classes in the short term, with further tightening of yields expected.
  • A continued shift from healthcare historically being an owner-operator asset class to an increasingly securitised asset class.
  • The ageing population, higher yields and long WALEs will continue to encourage investors previously focused on core asset classes to consider healthcare as part of their portfolio mix.