While Mr Martin Hession, head of property at Australian Unity Investments (AUI), predicts modest growth for the property market as a whole this year, he says the healthcare sector could have a standout year, a view supported by evidence from the first quarter.
“Offshore investors are seeking to acquire whole portfolios of healthcare properties, which we anticipate will lead to rising property values as competition for assets increases.
“Capitalisation rates stabilised during 2010, and in the first quarter of 2011 showed signs of tightening which will lead to increases in capital values.
“This provides managers with the opportunity to expand and refurbish properties, which should lead to increased rental returns and allow more favourable tenancy terms to be established including longer leases.
“For example, we are currently looking at investing up to $40 million in total in three private hospitals within our Healthcare Property Trust during the course of the year, which we believe will lead to stronger returns and enhanced capital value for investors in the fund.
“The economic cycle and demographic trends also support the healthcare property sector, allowing it to return consistent income to investors throughout the events of the past few years.”
Mr Hession said that there is also active demand from healthcare service providers – particularly for properties that are well located in high profile positions – which contributes to a positive rental income growth outlook.
“Alongside this demand for healthcare properties is the well-publicised increasing need for healthcare services for an ageing Australian society, which in itself helps to guarantee occupancy levels and contributes to yields.
“For example, private hospitals now perform the majority of elective surgery in Australia, and overall treat 40 percent of all patients – a trend that is likely to increase as health insurance membership continues to rise.
“It all adds up to a positive investment position for buyers entering the market now,” he said.
Mr Hession added that while there are negatives in other sectors of the property market, he believes there are enough positives outweighing them to allow overall growth for the remainder of the year.
“Office markets in particular are expected to perform well due to the sustained employment levels and lack of construction. Melbourne has the strongest market fundamentals, while Sydney should see improved growth levels later in 2011 as vacancy levels begin to trend downwards.
“There are also positive signs in the industrial and retail property markets, with the only threat on the horizon being an increased number of properties coming onto the market as the banks look to force the sale of distressed assets, placing downward pressure on prices.
“With industrial property, there has been little speculative activity in Melbourne and Sydney. Expectation of limited new stock due to funding constraints, together with tighter supply, give these markets solid underlying property fundamentals.
“I still expect 2011 to be tough for retailers, which in turn will make it more difficult for landlords to negotiate rent increases. Nevertheless, rental growth is forecast over the next 12 months, led by Perth and Melbourne. South East Queensland is forecast to return stronger levels of growth towards 2012.
“However, as there is little new retail development on the horizon, the sector should withstand today’s difficult retailing conditions,” Mr Hession said.
Australian Unity Investments property funds business has over $1.7 billion in funds under management (as at 28 February 2011) and was established over 30 years ago. Its unlisted funds and syndicates own more than 60 properties in the healthcare, retail, industrial and office sectors, across Victoria, New South Wales, Queensland, ACT, Western Australia and South Australia. Its flagship fund, the Healthcare Property Trust, currently has over $410 million in funds under management and holds 20 healthcare properties in New South Wales, Victoria, Queensland and South Australia as well as three vacant parcels of land for future development. The wholesale fund has returned 8.44 % over one year, 5.31% pa over three years, 11.35% pa over five years, and 12.89% pa since inception in 2002 (as at 28 February 2011).
For more information please contact:
Martin Hession – 03 8682 4408