VIC MARKET OVERVIEW ...Cont’d
(CPI) figures, for positive signs. Encouragingly, the healthcare and child care investment markets have consistently demonstrated strong performance, experiencing a shift of approximately 50 basis points over the past 12 months. This is notably lower than the shifts observed in more traditional asset classes, further highlighting the attractiveness of these sectors to investors. In terms of capital, what’s driving investor interest into alternative asset classes over & above more traditional real estate sectors. Confidence in the alternatives market is primarily driven by the non-discretionary nature of the asset classes, as these operators provide services that are fundamental to our day-to-day lives. This demand, when coupled with the growing support from both state and federal governments, instils a sense of comfort and security for investors when compared to more traditional sectors. These key factors solidify the sector’s essential nature and its resilience to economic downturns, making it an attractive option for investors seeking long- term holdings with immediate upside or strategic underlying value. Investment activity is being primarily driven by locally based and off-shore private capital. These two key buyer groups have been responsible for the majority of transactions in 2024, with the cost of capital restricting larger players from entering the market. These capital-ready buyers are able to be selective with the opportunities they target, leveraging the current economic climate. Consequently, our team has adopted increasingly strategic campaigns, proactively addressing potential buyer objections well in advance, and not only emphasising strategic value-add prospects but also collaborating closely with key consultants to create viable pathways for buyers. Based on your conversations with clients, what are the benefits of investing in alternatives & to what extent has the more defensive income profile & stable nature (portfolio hedging) of these assets been a drawcard, particularly for new investors. The resilience of operators within the alternative asset sector continues to be a major attraction
for investors, as the non-discretionary nature of their services provides insulation from market variability. With the sector being characterised by long-term leases and substantial underlying landholdings, which offer potential for future upside and growth. One of the often overlooked aspects of investing within these sectors is the level of commitment to assets that the operators have via their fit-out. Given the specific and specialised nature of these assets, tenants have often been involved in the design and build process and then contributed significant capital to the fit-out or equipment that is installed. As a result, they develop a strong attachment to the location for the long term, sometimes even beyond the lease duration. Relocating equipment from an existing facility to a new one can be extremely costly for most operators, and they aim to avoid it if possible. Understanding the costs associated with relocation, particularly with regard to crucial fit-out equipment, is a fundamental aspect of investment that our team actively educates buyers on. This knowledge becomes especially important when considering investments such as the St Kilda South Day Hospital and I-Med Bundoora, where the team demonstrated the relocation costs linked to key fit-out equipment such as MRI and CT Scanners. By delivering this understanding to buyers, the team provided confidence to buyers to see beyond just the current lease term. From an Australian perspective, alternative real estate assets are still relatively new to the market with a significant amount of maturity to come - what do you see is this sectors’ long-term growth potential. The alternative asset sector demonstrates robust long-term growth prospects within the commercial market, with a mix of established and emerging markets providing a strong foundation. The sector’s momentum is propelled by a combination of demographic shifts, lifestyle changes, and evolving political landscapes, which collectively influence the sector’s key fundamentals and market activity.
MARK STAFFORD Senior Executive – Healthcare & Life Sciences Capital Markets JLL Melbourne
Significantly, in the past few years, Australians
44 – July / August 2024
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