With a significant downturn in the economy, finding a rock-solid investment can be a little tricky. One such sector that is bucking the prevalent trend for many investors is medical centre & healthcare real estate.
The health sector in Australia makes up approximately 10 per cent of GDP(GrossDomestic Product). It is one of the industries that is growing despite the upheaval in the current global market.
Strong indications of continual growth can be observed on the back of an ageing population, longer life expectancy, substantial government healthcare subsidies and a general increase in the demand for medical services.
These combined factors have driven increased investment from fund managers into medical centre developments and private hospitals —subsequently, there is a higher demand for medical real estate.
HESTA recently announced that they were allocating $200 Million to health care property investment opportunities. The structure of the mandate also allows HESTA to grow their commitment over time. It is more than likely that a larger allocation from HESTA will transpire considering the space's incredible opportunities. Furthermore, many other fund managers are expected to follow suit.
Below is a summary of the key factors that make medical real estate an astute investment.
- Attractive leasing conditions. Highly quality tenants that typically seek long leases and secure leasing agreements.
- Healthcare tenants typically invest heavily into properties, resulting in fewer relocations and high retention and occupancy rates compared to other real estate assets, providing a more secure and stable income. The mix of tenants in medical buildings is vast and complex. A "one size fits all approach" is inappropriate. Some buildings are commissioned by medical groups, while other sites are redeveloped commercial spaces converted for medical purposes. Once the right tenant is matched with the right building, tenants are highly unlikely to vacate.
- The health sector makes up over 10% of Australia's GDP. Healthcare expenditure expressed in GDP terms has also grown in recent times. The industry also enjoys strong government support, meaning families can receive substantial subsidies, reducing their overall costs for healthcare. The federal government understands the barrier that high medical fees can create, particularly for families with a lower-income. Government funding increases the demand for medical services and helps healthcare operators and owners maximise returns.
- The Australian Government has pledged to deliver a record $115.5 billion in 2020-21 and $467 billion over the forward estimates to provide essential healthcare services.
- An ageing population. According to the ABS (Australian Bureau of Statistics), the median age of Australians has increased by two years over the last two decades, up from 35 years in 1999 to 37 years in 2019. Over the same 20-year period, the proportion of the population aged 65 years and older increased from 12.3% to 15.9%. This group is expected to grow more rapidly over the next ten years, as further cohorts of baby boomers (those born between 1946 and 1964) turn 65. By the end of 2020, ten of these birth year cohorts will have reached 65, with nine remaining. It isn't a secret that as the population ages, the need for healthcare-related services also increases.
- In the challenging times ahead, it is comforting to be invested in a recession-proof sector unaffected by various economic factors both here and abroad. Regardless of the state of the economy, everyone sooner or later will require a GP or specialist. The healthcare sector promises to remain bullish, despite recent upheaval due to COVID-19. Additionally, while healthcare will evolve and need to adapt to emerging technologies, it is implausible that the medical sector will ever be made obsolete.
- Projected growth forecasts are incredibly optimistic. With a growing and ageing population, the demand for high-quality healthcare is expected to remain strong well into the future.
While medical centres appear to be a fantastic long-term investment, finding an ideal site is vital to ensuring success. Successful investment in healthcare is mostly dependent on understanding the requirements of the different business models within the industry.
Before sourcing, designing and constructing a medical centre or healthcare facility, investors must carefully evaluate the specific requirements to ensure the right site is selected.
Factors to consider include proximity to competitors, accessibility, parking, council zoning, location of referrers, and the business model's specific requirements.
Different types of medical practices will have differing site requirements so, investors will require practical evaluation for sound investing. Some practices will require high volume and a high reliance on referrals from GPs. These practices are typically less specialised and may include pathology, radiology and pharmacy. This group would best be suited near hospitals or major medical centres where a constant flow of new customers can be obtained.
On the other end of the spectrum, clinics such as chiropractors or dentists who service low volumes of patients and have a lower reliance on referrals, have entirely different requirements. These businesses rely on the needs of their community; therefore, a position with great exposure is key to bringing in new clientele.
While medical real estate can make astute investments, it is critical to understand the site-specific demands. Failure to recognise the importance of the varying dynamics can result in lower rental returns and occupancy rates.
Sites that are sourced and offered by Queensland Investment Consulting Group are in high demand and based on operator requirements and instructions. Tenants are found and secured before property acquisition.
QICG understands that healthcare operators have different requirements. And as such, we work closely with healthcare operators to recognise their unique needs and tailor bespoke leasing opportunities aligned with their precise circumstances.
It's understood that the calibre of the tenant is vital to the value of a health care asset. All tenants vetted by QICQ are ensured to be financially experienced and can approve proposed leasing objectives.
Our process avoids the pitfalls felt by many other developers who fail at medical centre development.
QICQ risk mitigation is critical in all of our projects. It provides the foundational framework for our entire process, and it is the primary reason we enjoy continued success for all of our clients.
Buy on Completion
QICQ also offer clients the option of buying a healthcare property upon completion.This option eliminates the potential strain of development. Investors may enter an agreement with a developer to acquire the medical centre upon completion off-market.
This approach can benefit the developer and investor, as the investor can pass savings on to the investor from reduced marketing expenditure.
For more information relating to an investment in the healthcare sector, call our friendly team today.
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