Property investors drawn to ‘recession-proof’ healthcare sector

Book values have increased by 26 per cent per annum across a group of some of the biggest funds in the market.

Ingrid Fuary-Wagner

Healthcare real estate is fast becoming the new darling of the property market as appetite among large investors seeking high income security grows, yields tighten and total funds under management expand rapidly.

An analysis by independent valuer and adviser m3property found average healthcare yields have compressed from 6.4 per cent to 6.1 per cent over the last 12 months and are now on par with neighbourhood shopping centre yields and industrial yields both at 6.2 per cent.

The Healthcare Whitepaper: Summer 2019 also found book values have increased by 26 per cent per annum across a group of some of the biggest funds in the market including Vital Healthcare/Northwest, Australian Unity, Barwon Investment Partners, Dexus and Centuria Heathley.

Total funds under management increased by 210 per cent in the five years to fiscal 2019.

“There is no doubt that healthcare has stepped into the limelight at a time when investors are desperately seeking yield on the back of the poor performance of core asset markets, the comparative security of Australian assets, and the prospect of more attractive returns,” said m3property’s Laila Burnet, national director, health, aged care and seniors living.

“What is particularly attractive about healthcare assets is that they can generally offer relatively long WALEs which are perceived as somewhat recession proof and, in the current global climate of geopolitical turmoil, trade wars and the concomitant economic fallout, that is gold.”

Industry super fund HESTA recently identified the investment opportunity that Australia’s ageing population brings and joined the rush into the healthcare property sector giving a $200 million mandate to ISPT to set up a trust which will invest in private hospitals, general medical and residential aged care.

Renders for the North Shore Health Hub being developed by Dexus. 

Meanwhile Queensland Investment Corp, one of Australia’s largest institutional fund managers, recently announced it was making healthcare a single core theme across its asset classes of private equity, infrastructure and real estate.

Foreign investors have been a key driver in the growth of the sector with investment doubling from $3.6 billion in fiscal 2017 to $7.3 billion in fiscal 2018.

Earlier this year a Malaysian retirement fund took an interest in the sector with a $100 million stake in a wholesale healthcare fund which ASX-listed Dexus had established while Centuria won a $500 million mandate from two European institutional investors for the healthcare property platform it recently set up with Heathley.

Ms Burnet expects more competition from new entrants in the market in 2020 including from offshore players who are attracted by a weak Australian dollar and comparatively strong yields.

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