The global pandemic has placed health and wellbeing at the forefront of everyone’s minds, leading to a near-explosion in demand for healthcare property assets as investors and developers scramble to get a foothold in the sector.
The search for yield is also driving infrastructure investors to expand beyond typical core assets into capital-heavy healthcare assets such as hospitals and diagnostic imaging.
Healthcare assets share many characteristics with core infrastructure assets, particularly if investors think outside the box in relation to barriers to entry.
Major listed players in the sector include Dexus, Centuria, HomeCo, Elanor Investments and Charter Hall, while QIC has teamed up with Nexus and the Singaporean sovereign fund GIC has joined forces with NorthWest Healthcare Properties.
Andrew Hemming, managing director of the $1 billion Centuria Healthcare fund, said the scalable and quality assets now available to seed the funds and high-quality developments had underpinned the demand for the sector.
Mr Hemming said the arrival of COVID-19, the vaccine rollout and the need for preventative medical care were also catalysts to investment in the sector.
“The assets are now scalable in the $20 million to $200 million range and come with long leases and high-quality tenant covenants and, with an ageing population, well-run private hospitals and clinics, [they] will remain in demand,” Mr Hemming said.
“Investors also understand the strategy and that is propelling the sector to be a core investment for large funds and private individuals.”
Centuria has raised more than $500 million through its latest offering for the fund, with cash coming in from the UK-based Grosvenor group and other mandates are in the wings. The fund has added a Cotham Road centre in Kew, Melbourne to its portfolio, which includes the Bloomfield Medical Centre in Orange, NSW.
CBRE agents advised on the sale of the Cotham Private Hospital.
Sandro Peluso, from CBRE’s healthcare and social infrastructure team, said medical assets were a “long-undervalued investment class”.
“The secure nature and generous yields for medical assets are the main driving forces behind long-term growth for a sector with unwavering stability, even throughout the GFC.
“We have seen a substantial increase in the number of private local and international investors within the healthcare space over the past five years, transacting a number of freestanding medical centres ranging from $2 million to $10 million. As a result, we are beginning to see healthy turnover within a space that has long been undervalued.”
Dexus earmarked healthcare as a key growth sector in 2017 and has grown funds under management in its open-ended Healthcare Fund for institutional investors to close to $1 billion. It recently paid $446 million for the Australian Bragg Centre, one of the country’s largest single-asset healthcare acquisitions.
The Dexus North Shore Health Hub has been practically completed in North Sydney. It is a mixed-use medical facility owned by the Dexus Healthcare Property Fund, located adjacent to the Royal North Shore Hospital and the North Shore Private Hospital.
Dexus head of healthcare partnerships George Websdale said the Australian healthcare sector features the long-term underlying demand drivers of a growing and ageing population.
“Traditionally viewed as an alternative real estate asset class, healthcare real estate is now valued for its core style characteristics, namely the stability provided by long-term leases to well-credentialed operators,” Mr Websdale said.
“Investment in the sector also generates strong returns and contributes to job creation and economic growth.”
He said the North Shore Health Hub in St Leonards is just one example of a next generation, mixed-use asset in the fund’s portfolio that will set new sustainability and healthcare workspace benchmarks.
Charter Hall’s social infrastructure REIT is growing at a rapid rate and recently entered into an agreement to acquire a 100 per cent freehold interest in 14 Stratton Street, Newstead, Queensland in a sale and leaseback transaction with Mater Misericordiae.
Travis Butcher, the fund manager of the Charter Hall trust, said the Mater investment is an opportunity for the trust to gain exposure to the highly resilient health sector and also opens up future partnership opportunities with Mater.
The David Di Pilla-led HealthCo is being set up as the second trust to come out of Home Consortium and will be an institutional-grade portfolio of diversified healthcare and wellness assets that are highly attractive to investors.
The ASX-listed real estate fund manager Elanor Investors has also beefed up its Healthcare Real Estate Fund, with the addition of the Woolloongabba Community Health Centre to its portfolio.
David Burgess, co-head of real estate at Elanor, said the resilience of the healthcare real estate sector during COVID-19 saw the fund’s portfolio perform exceptionally well during the period.
“With these strong sector fundamentals expected to remain, Elanor is positive in regard to the growth prospects for its Healthcare Real Estate Fund,” Mr Burgess said.
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