RCA Insights

Large Players Turn to Australia’s Medical Office Sector

By on May 19th, 2021

Some of the most prominent players in the Australian commercial property market are turning their attention to medical office investments, boosting deal volume in the sector to a record in 2020 even as the overall market for commercial properties slumped.

Listed and institutional investors accounted for two-thirds of healthcare acquisitions in 2020, compared to an average of 28% in the preceding five years. Already in 2021, they account for 80% of healthcare transactions. Private investors, who have traditionally dominated the market, remain active but they may start to see their opportunities wane as they get squeezed out of the market by the larger players.

Elanor Investors Group and Dexus are two prominent firms to have moved into the niche sector. Dexus, Australia’s largest office landlord, has one of the country’s most significant healthcare funds in the Dexus Healthcare Property Fund, which has over A$1 billion in assets.

Australia medical office deal volume, top buyers and buyer composition

In terms of overall volume, Dexus and NorthWest Healthcare Properties have been the largest institutional investors in the sector over the last five years. Still, in terms of the actual number of physical assets, Barwon Investment Partners and Heathley (now Centuria Healthcare) are the largest acquirers. This is further evidence of the smaller players being some of the most active investors in the past, as they build scale through multiple smaller acquisitions.

Healthcare acquisitions have taken place almost exclusively in the suburban markets of the major state capitals. This is not wholly surprising as not only do these areas represent better value for money than CBD locations, they are located in the main population hubs and in proximity to major residential areas.

The location of medical office assets is perhaps also why smaller private investors have been more dominant in the space. They have tended to invest in suburban locations that often get overlooked by the larger institutions. As more listed and institutional investors search for higher-yielding assets in this “lower for the longer” environment, they will need to venture outside their traditional confines of the CBD markets.

Given the reported superior returns and the sector’s expected growth, we can safely deduce that healthcare is likely to follow the trend of both the industrial and residential sectors and become even more institutionalized in the coming years.

As we have seen with the industrial sector over the last few years, investors have opted for mergers and acquisitions or acquiring entire portfolios to build scale quickly and efficiently. We have already seen this happen in the healthcare space, with diversified investment manager Centuria acquiring a large stake in Heathley in 2019 and it would not be surprising to see some more megadeals in the sector soon.

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© Real Capital Analytics

More on RCA Insights:

Sales Activity in Australia Off to a Slow Start in 2021

Australia’s Volume Sinks to 8-Year Low; Office, Retail Drop

German Investor Groups Keep Faith in Australian Property

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Benjamin Martin-Henry

Head of Analytics, Pacific
bmartin-henry@rcanalytics.com

Benjamin Martin-Henry is the Head of Analytics in the Pacific region and an experienced market commentator, working in commercial real estate research for over a decade. Based in Sydney, his particular focus in recent years has been in the capital markets space and the nascent build-to-rent sector.