Hearts racing for Medical Investments amid pandemic

Published on: 09/11/2020
Hearts racing for Medical Investments amid pandemic

Burgess Rawson Sydney Director Simon Staddon
Published 02/11/2020

Commercial properties leased to medical businesses remain a feather in the cap of investment portfolios across the nation as Burgess Rawson records its busiest period for selling ‘essential services’ asset classes since the commercial real estate firm opened doors in 1975.

Appetite has soared for this medical asset class since the start of the pandemic, with buyers becoming more discerning and setting their hearts on premium investments that offer long-term security and resilience in these challenging times.

Medical investment insights

Medical assets have historically endured economic downturns due to their naturally ‘defensive’ qualities. Properties of this nature have a growing following as the tenants are perceived to be ‘sticky’ as they typically occupy sites for the long-term after investing heavily in facilities and equipment that are difficult and costly to relocate.

In the last financial year, Burgess Rawson saw private investors increasingly attracted to medical assets, and in many cases, this included tenants purchasing their own premises which is commonplace for doctors.

Despite a surge in demand from investors during the pandemic there remains a significant lack of supply of medical investments coming to the market. Simon Staddon of Burgess Rawson says “investors have huge confidence in the sector with the fundamentals ticking a lot of boxes, whenever we list a medical asset, leased or vacant, enquiry levels go through the roof. The sector is red hot but we simply can’t get enough supply”. The current climate and Australia’s ageing population has facilitated the perfect storm for this asset class, driving a sharp rise in demand with skyrocketing enquiries as investors seek COVID-19 defensive assets.

According to the latest Australian Bureau of Statistics data, 15.9 per cent of the population is aged 65 years and over, highlighting a growing demand for medical services.

This, paired with the medical industry’s steady operation throughout the pandemic, has caused competitive conditions for these highly sought-after investments now, more than ever.

This consistency is also reflected in property yields that remain unchanged by the pandemic, sitting around the five to six per cent mark, similar to early-mid 2019, it is quite possible the longer the pandemic continues the greater the chance of yields compressing to record lows in correlation to attractive lending rates.

Australia’s medical sales success

In the last financial year, 81 per cent of Burgess Rawson’s national sales were ‘essential service’ assets which includes the medical sector.

The sector’s performance can be exemplified in the following three recent sales, all of which were transacted amid the pandemic.

  1. Kiama, NSW – 133 Terralong Street

The team at Burgess Rawson sold this whole floor strata medical centre investment in the heart of Kiama for $2,610,000 at its Flagship Portfolio Auction in September. The asset attracted well over 100 enquiries from local and interstate buyers from as far as Port Macquarie, Canberra and even Melbourne. More than 24 contract requests were received prior to the auction with spirited bidding from up to 9 identified parties either in person at the auction or via pre-registered phone bids. The eventual selling price reflected a bullish 5.75% yield.

The large medical practice sits in a prime central location, occupying the entire ground floor of a 3 storey building with units above directly adjacent to the Woolworths-anchored Kiama Village Shopping Centre.

The practice has a long 14-year history, currently securing the whole ground floor on a brand new 7-year lease with options extending to 2037, returning a net income of $150,000 per annum plus GST and annual 3 per cent rent increases starting from 2022.

  1. Nambucca Heads, NSW – 2-6 Willunga Avenue

Burgess Rawson sold the established healthcare centre for an impressive $2,925,000, also at its Flagship Portfolio Auction in September. The large practice comprises three medical disciplines – GP Clinic, Renal Dialysis Unit and Imaging – and has been extensively fitted out to suit a medical centre.

Whilst the property had sitting tenants, the asset benefited from being offered with vacant possession, appealing to a diverse mix of potential owner occupiers and investors interested in the potential to negotiate a long-term lease.

Ahead of its sale, enquiries were flooding in all down the entire seaboard from Cairns to Melbourne – indicative of this sector’s popularity amongst investors nationally.

  1. Helensburgh, NSW – 2&3/20 Walker Street

A multi-clinic physiotherapist investment was snapped up for $1,350,000 on a 6 per cent yield a few days before September’s Portfolio Auction also – showcasing just how fast-moving property sales of this nature can be. With Sydney’s medium house price being close to $1 million, the incoming purchaser jumped at the opportunity to secure a commercial property investment showing higher returns at a comparable price point to residential.

If you are interested to learn more about upcoming medical investment opportunities, or whether this asset class could be a suitable addition to your portfolio, please don’t hesitate to contact me directly on 0413 640 851.

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