“Private hospital real estate investments have returned on average 16 per cent per annum over the past decade, with last year’s performance particularly strong at 25.4 per cent. By comparison, the office market – the best performer of the core sectors – recorded 13.4 per cent.”
Over the past 15 years, the number of private hospitals in Australia has increased from 509 to 630, while the number of public hospitals has declined. Private hospitals accounted for 47 per cent of total hospitals in 2016, up from 40 per cent in 2000.
The report shows the yield spread between office and hospital assets has historically been on average 180 basis points, narrowing to 80 basis points at the end of 2017.
The hospital sector has also shown more resilience during periods of heightened economic instability, compared to office, retail and industrial.
During the GFC, hospital yields didn’t expand as much as office and industrial – rising by 80 basis points between 2009 and 2010 while office and industrial yields increased by 160bps and 150bps respectively.
Higher returns in a lower global growth environment – coupled with strong population growth, an aging population and stable economy – makes healthcare assets an attractive investment. This is especially true for institutional investors looking to shift their focus to alternative classes that offer higher returns.
The demand grows for newly built and modular designs that meet higher technology requirements presents attractive opportunities for both development and investment in the sector.
The ownership model of hospital assets is also changing, with operators capitalising on their assets through sale-and-leaseback agreements. This type of ownership model allows operators to concentrate on their core business and unlocks value for future expansion strategies.