THE PROPERTY DEVELOPMENT REVIEW
“It’s a demand curve that we’re never going to get in front of.” Healthcare covers a broad range of assets, including retirement living, aged care, primary medical centres, day, acute and tertiary hospitals, and specialist facilities. Life Sciences includes large format pathology and research laboratories, pharmaceutical manufacturing facilities, biomedical research and even emerging sectors like medical marijuana farms and processing facilities. Life Sciences is a nascent investment class in Australia, despite being very well established in key global markets such as the United States, United Kingdom, parts of Europe and parts of Asia. “Investment here in Australia has really only begun to gather momentum in the last five years,” said Mr Biggins. “Prior to that, most of life sciences real estate was held either by government, or academia or a combination of the two.” One of the attractions for investors of Healthcare and Life Sciences real estate is that the tenants are very sticky, according to Mr Biggins. “The fitout can sometimes be a multiple of the base build construction costs,” he said. “So typically, once they’re there, it’s very rare that tenants relocate. “Medical real estate typically has much lower volatility and higher occupancy compared to the mainstream asset classes.” Mr Biggins said many investors and developers in this space were looking at buying larger medical and life sciences facilities, in established healthcare precincts. Knight Frank’s recently released Life Sciences and Innovation report, based on a survey of life sciences occupiers in Queensland, found the overwhelming feedback was the desire for co-location with other facilities in established healthcare precincts, particularly either hospitals or academia, or ideally both to create an ecosystem. “There’s no shortage of capital looking to build life sciences products here in Australia, but the key is having access to the tenants and trying to be in a location where you are either co-located or have close enough proximity to other life sciences ecosystem occupiers to establish a critical mass of tenants in an incubator-style environment who feed off each other” said Mr Biggins. “Being dislocated out as an island independently isn’t going to work.” Knight Frank is currently looking to grow its Healthcare and Life Sciences business to better service clients in key markets in this growing sector moving forward. Mr Biggins predicted that over the remainder of this year there would be opportunities created for smaller investors or high-net- worth family offices to gain exposure to the healthcare and life sciences sector. “I expect we’ll continue to see non-core assets divested by institutional investors, with their focus more so on larger, perhaps single-occupier institutional-grade real estate,” he said. “In terms of transaction opportunities, I believe we’ll also continue to see more asset recycling in the aged care space as a number of the operators rationalise their portfolios.” Mr Biggins said the aged care sector was experiencing change, as legislation around federal bed licences ceases to apply from next year, with approval going back to local councils or planning authorities. Aged care was also particularly challenged by COVID, which had an impact on the occupancy of facilities and the availability of labour. Construction costs are also having an impact on the asset class. “What we’re seeing from a transactional perspective is a number of our aged care sector clients are looking at their asset management strategies, including how many sites they ay have within a certain geography, the occupancy of those facilities, and also the availability of staffing for those facilities,” Mr Biggins said. “In some cases, they’re choosing to streamline their portfolios and divest some assets to release equity to reinvest into the facilities they will retain.” When buying healthcare and life sciences assets, investors need to look at the location of the asset, any competing facilities nearby, and in particular conduct deep research into the population growth in the area and the demographics, because that correlates back to the services that may be in demand in the area in the future, according to Mr Biggins.
September / October 2023 – 11
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