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Why Invest in Healthcare Property?

  • Posted: February 16, 2017

Healthcare property continues to outperform all other property sectors and offers a lower risk investment.

Key points:

  • Stable tenant profile
  • Low interest rates
  • Competitive property yields
  • Tax benefits
  • Greater control and security
  • Build a retirement strategy

The Australian property market is continuing to evolve, with specialised market sectors emerging and performing above traditional property assets, this has been evident with the Healthcare property sector. In particular the last five years, where main stream property assets such as office and retail have struggled with the impact of the GFC, which resulted in highly volatile returns.

According to a recent report The Property Council/IPD Australia Quarterly Healthcare Property Index published by the Property Council of Australia and IPD Australia & New Zealand, over the last five years on an annualised basis total returns for healthcare properties was 10.7% well above the all property total return of 7.2%. This result can be contributed to the secure rental return of healthcare properties due to the strong long term tenant profile of healthcare professionals.

Total return for All Property and Healthcare annualised returns to December 2013

Healthcare tenants are also driven by different market forces compared to commercial and retail tenants who are more vulnerable to economic fluctuations. This market is predominately driven by population growth, demand is further compounded by the increase in an ageing population which have a higher dependency on medical services.

 Australian male population projections by age group 2012 v 2031 Australian female population projections by age group 2012 v 2031 

Over the next 20 years the Australian Bureau of Statistics (ABS) projects Australia’s population based on medium growth assumptions for fertility rate, mortality rate and net overseas migration to grow by around one third or 1.69% per annum on average. In the age groups over 75 years the average annual growth rate is noticeably higher of 4% to 5%, this will see greater demand for healthcare services.

As the population continues to grow and people continue to sprawl out beyond metropolitan areas, there are opportunities in regional areas that should be considered, especially for professionals who are seeking a lifestyle change from urban centres.

Over recent years we have seen enquiries increase for Purpose Built Facilities, Specialist Centres and Mixed Use Medical Centres as medical professionals are becoming more sophisticated property investors. Looking at the smaller end of the market such as healthcare practices operating from retail strip shops, commercial offices and shopping centres, offer an affordable entry point for investors. In Sydney, a small investor can purchase a typical commercial strata suite for sub $500,000; while larger investors can acquire commercial buildings or prime retail strip shops from $1.50 million up to $2.50 million for space in well-established suburban areas.

In the current low interest rate market coupled with greater availability of finance and competitive property yields, there are opportunities for Owner Occupiers to expand their practice through property. Any excess space can leased to other complementary/referral businesses that will assist business growth and provide additional business revenue. By purchasing your own property, you have greater control and security, as it is not uncommon for tenants to be forced to relocate after many years which can be detrimental to your business when you have an established clientele and referral network.

In this market segment, we have also seen a greater number of purchasers funding their investment through their own Self-Managed Super Fund to build their retirement strategy around the business property.

In conclusion, healthcare properties offer an affordable, lower risk profile as tenants are less sensitive to current economic market fluctuations domestically and internationally, combined with a long lease with a stable income stream and tax benefits to provide a good return. Looking ahead, there will be higher demand for healthcare services due to Australia’s project population growth, particularly from older age groups whom have a greater dependency on health services.