The healthcare sector has experienced a remarkable transformation in recent years, solidifying its position as a frontrunner in attracting significant government support and funding. Investors have duly acknowledged that healthcare assets are now an essential component of their portfolios, and this recognition is well-founded.

The healthcare industry’s transformation has been driven by a convergence of factors, including a thriving and ageing population, coupled with significant government support, making it one of today’s most robust and resilient investment options. The recent federal budget confirms this commitment, allocating an impressive $101 billion for healthcare funding, totaling $580 billion over four years.

It is for these reasons, healthcare stands out as one of the most secure asset classes, offering long-term tenancies and consistent rental growth. Healthcare businesses, in particular, require substantial investments in fit-outs, which serves as a compelling factor for occupiers to commit to longer lease terms. The higher the fit-out expenditure, the less incentive there is for tenants to consider relocation.

Health assets cover every price point, further contributing to their appeal. Our data has found healthcare investments generally range from $750,000 to $4 million with incomes ranging from around $30,000 to $250,000 plus. The median sale price by Burgess Rawson has been $2.1 million since 2022.

Burgess Rawson’s Healthcare Industry Insights Report also reveals a positive trajectory in cap rates for healthcare assets over the past seven years. In 2018, median cap rates started at 7.25%, marking the beginning of a compelling journey.

Fast forward to 2022, and we witnessed a remarkable tightening, with cap rates returning to 5.46%. Although 2023 saw a modest uptick, with cap rates settling at 5.77%, it’s important to recognise the contributing factors, including 12 cash rate increases and accompanying market uncertainties.

Investors remain incredibly keen, drawn by the promise of healthy net returns compared to other sectors. This is supported by recent transactions with our last Portfolio event recording an impressive yield of 3.96% with the sale of Ambulance Victoria in Narre Warren.

The auction recorded spirited bidding with the purchaser attracted to its secure lease, safe tenant and guaranteed rental growth.

Due to the strong performance of these assets, institutional and private investors are increasingly turning to health for stability and returns.

Major institutions such as Australian Unity, HealthCo, Centuria, Dexus, Charter Hall, Barwon Investment Partners, and more recently, Elanor Healthcare Real Estate Fund, have been key players in this sector, with their portfolios enjoying substantial growth and strong annual returns.

Of note, the substantial injection of government funding increasingly covers various facets of the healthcare sector, with pharmaceuticals and allied health emerging as significant beneficiaries.

Research conducted by IBISWorld highlights the robust growth of the Pharmaceutical Benefits Scheme (PBS), with an annualised growth rate of 4.9% from 2018 to 2023, and government funding reaching $14.75 billion in 2023. It is expected to reach $18.2 billion in 2023-24.

Furthermore, the Australian Medical Association’s projection of a shortfall exceeding 10,600 full-time General Practitioners by 2031-32 underscores the increasing role that pharmacies will play in bridging this gap.

Because of these factors, pharmacies have risen as highly sought-after investments, also owing to their income security as operators are willing to pay premium rents in this sector.

Our December Portfolio features a host of premier health assets, including medical and pharmaceutical offerings, with a notable number of regional opportunities.

As migration rates continue to rise, regional healthcare assets are positioned to reap the rewards of increased government investment, underpinned by a thriving and growing economy.

“Healthcare properties are coveted investments, valued for their capital-intensive setups and location-dependent tenants, ensuring stability and sustained returns.’

– Raoul Holderhead, Burgess Rawson Partner

Healthcare Highlights

Ambulance Victoria, Narre Warren VIC

One of the most noteworthy transactions was an ambulance station in the outer south-eastern suburbs of Melbourne, fetching $3.03 million at a low yield of 3.96%.

The investor was attracted to the secure lease, governmentbacked tenant and guaranteed rental growth. The Narre Warren property was purpose-built for Ambulance Victoria in 2010 and was transacted with a renewed six-year lease and CPI-linked annual rent reviews.

Historical Pharmacy, Horsham VIC

A well-known pharmacy in Horsham, a regional town in Victoria, changed hands for $1.63 million.

The iconic pharmacy has been servicing the community since the 1880s, and was previously run by the seller, operating as Burgess Chemist until his retirement. Rural health in Australia is experiencing significant transformations driven by evolving migration patterns with an influx of some 70,000 people relocating to regional areas since 2020.

Warrawong Medical Centre, Warrawong NSW

The quality, newly renovated health centre is a prime example of the benefits of a major refurbishment and fit-out.

Transacting for $21 million, the premium 5,259 square metre asset is fully occupied and offered a solid net income of $1,412,569. The highly defensive asset offered multiple and integrated medical services including a general practice, dental, physiotherapy, pharmacy and pathology.