Despite the challenges in the construction and property market due to the COVID-19 pandemic, the rise of knowledge and innovation precincts has aroused the investment interest in Australia’s booming healthcare and life sciences property market.
As COVID-19 has considerably downsized investment flows and extended dealing times, the investment interest in alternative sectors thus has been primarily spurred because of the increasing demand for income security. A recent CBRE Viewpoint report (2020) highlighted that as a result of the reduced cost of debt, the firmer yields of traditional property assets in recent years has seen investors increasingly allocating their capital to alternative sectors. Healthcare (including medical centres, hospitals, clinics, pharmaceuticals, life sciences, etc.) is the frontrunner, with almost 25% of respondents who expressed interest in this sector. Moreover, the healthcare sector has already gained institutional investment acceptance over the past decade and now has permeated in the Australia market. Compared to 2018, transaction values in healthcare, medical centres and hospitals increased in excess of 100% during 2019 to $549 million.
With the ageing population and the severe impacts of COVID-19 raising the profile of medical infrastructure, the investment in the asset class is understandable. The healthcare sector is highly related to essential services, which is not affected by recessions or relying on uncertain property asset prices. This is not dissimilar to the increased trading performance of the major supermarkets during the COVID-19 impacted period.
$10.1 billion has been committed by the NSW Government over the next three years to June 2023 for health infrastructure investment (NSW Health Infrastructure, 2020). There are over 80 projects underway, with from billion-dollar precinct redevelopments, to new hospitals and community health facilities, NSW Health Infrastructure is managing Australia’s largest portfolio of health capital works and transforming the shape of NSW health care. However, healthcare assets of investment potential remain limited due to their specialist use and high cost of entry for larger hospital assets. The result is that the strong demand further compresses the investment yields and income returns.
Investors and developers should note that the expected burgeoning growth in the healthcare sector would fuel the demand for the office market in Australia’s post-pandemic market. JLL research (2020) forecasts that the investment in high-quality care, social services, pharmaceuticals and aged care are all on the cards and further drive the office leasing markets recovery. It is expected that with Australia’s ageing population and the needs to increase spending on healthcare, the expansion in healthcare-related activities will increase in the future. Suitably zoned property in Macquarie Park and Westmead are recognised as future growth hotspots as current medical and associated tenants continue to expand as the industry grows. Land surrounding the San Hospital precinct in Wahroonga has seen strong demand and new medical suites and associated medical demand for development in Fox Valley Road.
However, healthcare is not the only promising industry for developers and investors. With COVID-19 restrictions easing, the emergences of a variety of green shoot sectors like property technology, the digital economy, e-commerce and home entertainment areas will witness the positive flow-on effects to the recovering office market, not to mention the significant ongoing strength of the industrial property market.
Astute developers and investors will interrogate what impacts of the pandemic will continue to affect the use of property as a vaccine is developed and we return to a post Covid-19 environment, which sectors are undervalued and where real opportunities are to found as the economy recovers.
Mitigating risks and maximising profit in property development.
Development opportunities within the dynamic property market cycles and demographic trends are reviewed in depth in the eight-week Property Development Insights course commencing on Tuesday 2nd February 2021. The course is comprehensive and comprises five expert industry presenters, and is very limited in size to ensure optimum interaction and knowledge retention.
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Course Series Details
Date: Tuesday evenings 6:00pm – 8:45pm; 2nd February 2021 to 30th March 2021 (excluding 2nd March)
Venue: Excen Corporate Centre, 133 Alexander Street, Crows Nest NSW – 10 min walk from St Leonards train station, 2 hour free parking available nearby.
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