Australia’s healthcare property market will likely see further greenfield projects in 2023, as investors look to grow their portfolios through developments.  

“I think there’s going to be a lot more greenfield development in healthcare moving forward,” Laila Burnet (pictured), the National Director of Health, Aged Care and Seniors Living at M3 Property, told ANZPJ.  

“There’s a little bit happening at the moment from previously agreed development sites, but I suspect we’ll start to see more in 2023. One area where we’re seeing a lot of discussion is in mental health, so new mental health facilities and mental health services, which are easier to build because you don’t need operating theatres and so forth.” 

The healthcare market has faced the same development challenges seen across the wider building and construction industry, including supply chain issues and rising construction costs.  

Some projects have been delayed or put on hold, however Burnet said healthcare property investors were seeing construction costs starting to decline or stabilise in certain areas.  

“There aren’t the assets out there for them to grow their portfolio still, at least not the ones that they’re looking for,” she said.  

“So they are looking at investing in greenfield projects in areas where they get to control the development and lock in a tenant early on before it’s even built.  They know they’re going to grow if they’ve got greenfield development happening.” 

It comes after a subdued year of healthcare investment in 2022, compared to the prior two years. 

“Over the past year, the healthcare market has certainly declined in the number of transactions that have occurred,” Burnet said.  

“It was this hive of activity leading up to 2022 that then stabilised. There has been limited activity in the last of six to nine months, not necessarily because of the cash rate and those other external factors, but simply because there was a lot of the activity in the preceding 24 months and it had to slow down.” 

In 2020 and 2021, there was a wave of consolidation from healthcare investors like Barwon, Northwest, Dexus, Centuria, Elanor, HomeCo and Real Asset Management. 

NorthWest’s Specialist Medical Centre project in Adelaide.

Burnet said the healthcare sector had been something of a cottage industry traditionally, made up of individuals and large operator groups.

But then investment groups started to enter the space in recent years, buying up healthcare assets and adding them to their portfolios.  

She said it had been a frenzy of activity with yields coming down from 7.5% to as low as 5% and even secondary grade assets getting snapped up quickly. 

“Moving forward, there is still demand for prime assets that come to the market if they have strong lease covenants,” she said. 

“There is still incredibly competitive market bidding for prime assets, it’s just their due diligence is a bit longer now.” 

The National Director said she expected limited investment activity in 2023, along with a slight softening in yields and discount rates.  

Despite the investment slowdown, healthcare property remained an attractive sector due to its defensive qualities.  

Burnet said healthcare property was more resilient to economic factors than traditional asset classes like offices and shopping centres.  

For example, companies typically grow their workforce and office space needs in economic booms, then shrink their staff numbers and office space requirements in downturns.  

Alternatively, demand for healthcare property was underpinned by Australia’s ageing population and prevalence of chronic illness. 

“We’ve got an incredibly good public health system in Australia, but it’s bursting at the seams and so hence why the growth of the private health sector has been really strong over the past 20 years,” Burnet said.  

“That’s where we’re seeing the majority of the growth and that’s where all the investment is happening. The partnership between private and public health is very close, so private investors seek sites near public healthcare.” 

Burnet said there had been a rise in health precincts around the country like the Box Hill health precinct in Melbourne.  

Another example was the Lyell McEwin Hospital in Adelaide, where NorthWest started construction on a specialist medical centre near the hospital in October this year.  

Burnet said investors were increasingly pursuing opportunities with universities, creating properties to train healthcare students in proximity to healthcare assets.  

Last month, ISPT, HESTA, UniSuper and Plenary Group announced they were partnering with UNSW Sydney to develop the circa $600 million Health Translation Hub (HTH) project in the heart of the Randwick Health and Innovation Precinct in Sydney.

The Health Translation Hub (HTH) project in Sydney.

The 15-storey health education and research asset was expected to form an integral part of the establishment of one of Australia’s pre-eminent health precincts.

M3 Property was also seeing those more allied health and pharmaceutical-type facilities going into office and commercial buildings close to universities. 

While some of these buildings were just repurposed office and commercial buildings, the addition of a health tenant meant the asset typically had a longer weighted average lease expiry (WALE). 

“It’s blurring the lines between a health asset in a fund and an office building,” Burnet said.  

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