The Valuers' View - Health Care/Medical Property

March, 2021

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The Valuers’ View

To assist lenders, investors and owners, the Valuers at m3property have contributed their opinions on the current performance of the property markets and where they expect those markets to head over the short to medium-term.

The survey examines nine property sectors, looking at the key measures of market yields, internal rates of return (IRRs), rents incentives and value. Occupancy rates and average daily room rates were added to the survey for the hotel sector. Indicators including zeros indicate stability was also selected by respondents.

The key themes that will drive the real estate markets in 2021 will be:

  • Economic recovery as restrictions ease and confidence returns

  • Low population growth, but likely to rise as the vaccine rollout continues and borders re-open

  • Record low interest rates

  • Continued focus on Environmental, Social and Governance (ESG) factors when investing and managing portfolios

  • Growth in inflation resulting in rent growth for landlords, where rent increases are linked to inflation

  • The gap between prime and secondary yields is likely to widen

  • Government spending to remain high, despite stimulus starting to reduce

  • ‘Flight to quality’, flexible terms and convenience expected to continue to drive tenant demand

  • Rebound in investor demand due to cashed-up investors, low cost of debt and global interest in strengthening countries with stable property returns

  • Continued investor focus on defensive assets, particularly in sectors with government backing and for properties with long WALEs and minimal need for capital expenditure

  • Despite strengthening residential markets, the official cash rate is likely to remain on hold in the short to medium term due to continuing economic uncertainty, low wages growth and labour markets not being at full capacity. The appearance of an asset price bubble is more likely to be remedied with macro-prudential constraints on lending rather than rising interest rates, which could derail the economic recovery if used too early.

  • If the post-COVID-19 economic recovery does surprise on the upside resulting in asset price bubbles, full employment and rising wages, this would drive up inflation, bond yields and the cash rate. This scenario would represent a risk to the property markets as it could flow through to the cost of capital and yields. That said, the RBA is likely to continue to implement yield curve control to keep bond yields in line with the economic recovery and a strengthening economy would provide stronger cash flows and vacancy would reduce.


Laila Burnet

National Director - Health, Aged Care & Seniors Living

View Profile > VIC

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Health Care/Medical Property

While disrupted early in the pandemic due to social distancing and restrictions on movement, the health care/medical market are considered essential services and, therefore, a defensive play.

This perception resulted in investment demand continuing throughout the pandemic to date.

Health Care/Medical Results

Yields and IRRs

  • Prime medical assets continue to be attractive to investors providing strong returns.

Rents and Incentives

  • While rents decreased in some areas, overall they stabilised or increased since the start of COVID-19. This is expected to continue to be the case over 2021.
  • Incentives have done the majority of work to win tenants to new and existing space over the pandemic. Overall effective rents have therefore been fairly stable.


  • Prime health care/medical asset values have risen since the start of COVID-19 and are expected to continue to increase in 2021 as yields continue to tighten on the back of strong demand from investors.
  • While still in demand and largely seeing values rise, secondary assets have seen areas of stability where lease terms have been shorter or assets have required capital expenditure.