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Medical properties emerging as one of Perth’s hottest property markets

July 11, 2018

This Wanneroo medical centre sold within seven days for more than $1 million. Photo: Supplied

Escalating demand for healthcare services is fuelling the medical property market, with buyers seeking Western Australia properties walking away empty-handed, according to industry players.

Regular enquires were being made from local, national and international buyers for this investment class, Colliers International WA investment services executive Henry Vu said.

“In most cases, these investment-grade assets appeal to large funds with (its) long WALEs (weighted average lease expiry) and secure tenancies. The steady consumer demand for healthcare services also ensures stable yields despite market conditions in the wider real estate market,” he said.

Abbotsford Private Hospital, in West Leederville, was purchased off market by New Zealand-listed property trust Vital Healthcare Property Trust for $20 million in 2017. Photo: Supplied Abbotsford Private Hospital, in West Leederville, was purchased off market by New Zealand-listed property trust Vital Healthcare Property Trust for $20 million in 2017. Photo: Supplied

In addition to WA’s smaller investment-grade health market, Mr Vu said most of the private hospital providers were owner-operators, with only a few owned by one entity and run by another.

“Perth has a good supply of strata medical buildings and demand for these facilities remains consistent, in contrast to the strong appetite and shortfall in institutional investment-grade stock,” he said.

Ray White Commercial WA director Stephen Harrison said sales volumes had remained fairly consistent although investor demand had increased, which was evident by the tightening yields the assets were transacting at.

“The medical industry has always been viewed as relatively ‘blue chip’, but the ageing population across the nation, coupled with the shortage of doctors has further strengthened this view, especially for ‘complete’ medical centres which have not just your GPs but allied health, pharmacy and other complementary uses,” he said.

As the demand for health services grows, investors are willing to pay a premium for medical assets like this Wanneroo strata property. Photo: Supplied As the demand for health services grows, investors are willing to pay a premium for medical assets like this Wanneroo strata property. Photo: Supplied

Anthony Morabito, Altegra metropolitan markets sales and leasing director, said there was plenty of appetite for medical as an investment class, with his company selling a Wanneroo medical centre within seven days of it hitting the market.

Records show the refurbished 173-square-metre centre at 2/876 Wanneroo Road, sold for $1,025,000 – close to double what it last sold for just a year ago.

Mr Morabito said a private investor bought the centre, which came with a six-year lease and an attractive yield of 7.6 per cent.

He said while the centre’s yields were above the current market norm of low to mid 6 per cent, medical facilities were a sought-after asset class due to the security associated with such an investment.

Meanwhile, Mr Harrison said the ageing baby boomer population had created an increase in demand for medical services, which was set to continue to grow.

“Medical centre leases tend to have a long lease tail and a high value fit-out,” he said.

“The long lease and high cost of moving creates a low risk asset. The demand coupled with the strong lease covenant attributed to these centres, ensures the long-term viability for the asset with a reduced risk profile for the investor.”

National boom

Australia’s ageing population has resulted in private hospital real estate outperforming the core asset classes of office, retail and industrial classes with returns of more than 25 per cent last year, according to CBRE’s Retirement & Healthcare research.

Due to increased demand for aged healthcare across the country and its impact on the private hospital property market, record low yields of 6.4 per cent were recorded in the three months to December 2017 – down from 9.4 per cent at the peak of the cycle.

Private hospitals made up 47 per cent of Australian hospitals in 2016 – a 17.5 per cent increase since 2000. While public hospitals have dwindled, the number of private hospitals in the nation has gone up from 509 to 630 in the past 15 years.

When compared to office, retail and industrial markets, the report found the hospital sector was more resilient during economic instability.

Notably, hospital yields did not go up as much as office and industrial yields during the Global Financial Crisis, the report identified – meaning hospitals retained more of its value.

Hospital yields increased by 80 basis points during 2009-10, while office and industrial yields went up by 160 basis points and 150 basis points respectively.

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