Industry overview

New Zealand and Australian healthcare real estate sector

Globally, a key driver of the performance of healthcare real estate and associated healthcare services is the ageing demographic. Current statistics suggest in New Zealand and Australia, the over-65 age group is expected to more than double to around 30% of the population over the next 40 years. This demographic utilises healthcare services at around 3-4 times the rest of the adult population. The rising demand for healthcare services will need to be met through a combination of technological improvements in medicine, operational efficiencies from hospital operators and potentially additional hospitals and medical and rehabilitation centres.

In New Zealand and Australia, healthcare real estate (which includes hospitals, medical centres, laboratories and so on) is considered tightly held, with the government being the largest owner of healthcare real estate, principally public hospitals. However, there is a significant and growing number of private owners of healthcare real estate - including private health insurance companies, hospital operators, not-for-profit organisations and institutional investors.

In healthcare real estate leases are typically long (circa 20 years for hospitals) and the landlord is not liable for operational or maintenance expenditure. Leases can be structured and managed in a way that helps drive the performance of the investment. Land is generally freehold and owned by the operator, landlord or institutional investor.

The public health system is principally geared to deliver acute (urgent) services. With expectations of rising demand for healthcare services, the unpredictability of demand around acute services means the public sector tends to ration access to non-urgent or elective surgery.

Private health insurers complement the public health system by covering the cost of many semi-acute and non-urgent procedures such as orthopaedic and cataract surgery.

A key benefit of private healthcare insurance is that it provides a much greater degree of certainty and timeliness than the public health system. Private health insurance levels in New Zealand are around 30% compared to almost 47% in Australia. Private health insurance levels provide an indicator of potential demand for private healthcare services.

As an investment, healthcare real estate has a history of low volatility coupled with defensive and stable returns. Healthcare real estate is considered counter-cyclical, namely people don’t tend to change their healthcare spending patterns depending on the economy. Consequently, healthcare real estate returns tend to outperform other property segments when economies are weak.