Thanks to their inherent diversification benefits, healthcare real estate investments in Melbourne have consistently provided strong returns despite challenging economic conditions.

This sector has experienced strong capital flows and steadily increased market share due to its attractive property income yields and defensive characteristics, as well as a favourable risk-adjusted return profile. Additionally, macro-demographic factors are contributing to strong market fundamentals too.

In this spotlight, investors are seeking opportunities beyond the traditional commercial property sectors of retail shopping centres, office buildings, and industrial facilities and are looking for property alternatives.

Reasons for Australia’s healthcare real estate investments under the spotlight

Favourable fundamentals for asset classes

To decrease overall risk and boost long-term investment returns by diversifying core assets portfolios, institutional investors are currently showing a high level of interest in existing healthcare assets, including healthcare-focused funds and fund managers seeking to diversify their portfolios of core assets.

When compared with traditional investment asset classes, healthcare assets have a longer average lease expiration period. Due to their low-risk profile, these investments are perceived as less exposed to adverse economic conditions. Construction and fit-out of purpose-built buildings encourage long-term tenant occupancy and lead to a high probability of lease renewal, thereby providing a relative certainty of income.

Low cost of capital

Due to low-interest rates, debt costs are dropping and investors can pay higher prices for assets. The costs of all-in debt for healthcare assets are at record lows for Australian banks and even lower for international banks.

A consistent differential on the debt component continues to provide an accretive investment opportunity. Despite another interest rate cut likely in the near term, healthcare assets are expected to benefit from lower debt costs in the short term.

Ageing population

It cannot be denied that Australia isn’t the young nation it used to be and that it’s only getting older. Between 2018 and 2028, the population is expected to grow by 1.5 percent each year, while the over-65 population will increase by 3.1%.

The pandemic has underscored the need for high-quality healthcare, which has resulted in baby boomers spending more on their health today than ever before.

Increase in preventative care

In Australia, the cost of medical care is on the rise. Health care services are heavily funded by the federal government, and federal healthcare expenditures are expected to more than double by 2030.

Healthcare demand is an opportunity for commercial real estate investors

The number of medical establishments in Australia is currently undersupplied. Communities across the country must continue to invest in primary care infrastructure, including medical centres and aged care facilities.

This is a great opportunity for medical real estate investors.

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