Australia healthcare transactions reach $1.6b in the first nine months of 2023

Investment demand remains robust for this sector.

Australia’s overall healthcare environment has been resilient in the face of the economic slowdown with some positive demand indicators. According to a Dexus Research report, private health insurance up-take of hospital cover increased by 270,160 people over the 12 months to June 2023. This saw national coverage rates lift from 44.9% to 45.1%. 

More than half of this growth came from people aged 25-44 and 75yrs+.The industry is further set to benefit from an increase in premiums over the next quarter which see increased investment into the private sector. 

Here’s more from Dexus Research:

Utilisation of Medicare funded services increased over the 12 months to June 2023. The strongest growth in number of services came from Optometry (10% yoy) followed by Imaging/diagnostics (4% yoy), and Radiotherapy (4% yoy). Each of these services support long term health conditions, backed by government funding. 

Despite the sectors fundamentals being largely positive, a higher inflation environment has led to cost pressures for some operators. Cost pressures are more prominent amongst primary healthcare operators with secondary and tertiary much less exposed. General Practitioners have attempted to pass on these costs to patients, however this has led to 12% decline in the number visits in the 12 months to June 2023. Projected growth in population will somewhat offset this decline in volumes. 

Investors are generally protected from these operational trends, by leases which typically mandate fixed, or CPI linked increases, providing a stable income/growth profile. The most likely outcome of these short term operational pressures is a trend towards the consolidation of smaller or poorer performing healthcare operators. 

A shift towards defensive assets continues to benefit the healthcare sector. Investment demand for health assets has remained robust compared to other traditional property sectors. Around $1.6 billion of healthcare transactions occurred over the year to September 2023, just shy of average full year volumes. 

Like all other real estate sectors, healthcare is feeling the impact of higher interest rates on pricing, with some pressure on valuations. However, this is a phase of price discovery at a time when underlying sentiment for healthcare remains very positive. 

The sector is poised to attract an increased capital allocation over the next few years as price expectations become clearer, due to its nondiscretionary nature, diversification benefits and longterm growth thematic. Valuations are expected to benefit from funds being allocated away from some of the larger more traditional real estate sectors.