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Australia's ageing population driving healthy returns for private hospital assets

Australia’s ageing population is helping position private hospital real estate as the top ticket for property investors, with returns of more than 25% in 2017 outperforming the traditional office, retail and industrial classes.

05 Jul 2018

Australia’s ageing population is helping position private hospital real estate as the top ticket for property investors, with returns of more than 25% in 2017 outperforming the traditional office, retail and industrial classes.

CBRE’s new Retirement & Healthcare research series highlights the impact growing demand for aged healthcare in Australia is having on the private hospital real estate sector, driving industry yields down from 9.4% at the peak of the cycle to a record low 6.4% in the final quarter of 2017. 

CBRE Senior Research Manager Danny Lee said people aged over 65 accounted for half of all medical treatments undertaken in private hospitals - meaning the increased life expectancy of Australians would continue to drive growth in the private healthcare sector. 

“As the share of over 65s increases over the next two decades – growing from 15% of Australia’s population to 18% by 2027 – the impact on real estate is expected to be significant,” Mr Lee said. 

“Private hospital real estate investments have returned on average 16% per annum over the past decade, with last year’s performance particularly strong at 25.4%. By comparison, the office market – the best performer of the core sectors – recorded 13.4%.” 

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% of total hospitals in 2016, up from 40% 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. 

CBRE’s National Director of Retirement and Healthcare, Phil Smith, said healthcare assets represented an attractive investment given their higher returns in a lower global growth environment. 

“Australia’s relatively strong population growth, quality healthcare, stable economy and ageing population are strong propositions for investment in the sector,” Mr Smith said. 

“Institutional investors in particular are shifting their focus to alternative asset classes that can offer higher returns, and healthcare assets satisfy that demand.” 

Mr Smith said with many of Australia’s existing hospitals ageing, there was opportunity for greater investment in the growing sector. 

“With a significant proportion of existing stock dated, there is demand for newly built and modular designs that meet higher technology requirements. This presents attractive opportunities for both development and investment in the sector,” Mr Smith said. 

“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.” 
 
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About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2017 revenue). The company has more than 80,000 employees (excluding affiliates), and serves real estate investors and occupiers through more than 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

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Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE: CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2021 revenue). The company has more than 105,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at https://www.cbre.com.