Melbourne healthcare property: a snapshot

A 2017 ad for a Narre Warren medical centre. Following this campaign, the property sold to an offshore investor for $12.5 million.

With a population of nearly five million, growing at a rate of more than 125,000 per year; changing demographics; new lifestyle habits; new living habits – including medium-density apartments in the suburbs – Melbourne now has a large, established, diversified and competitive, healthcare property sector.

Healthcare-related real estate can include anything from a sub-$500,000 asset, like a doctor-leased clinic in a suburban strip or regional area, through to multi-tenanted medical centres, which can be worth upwards of $20 million.

Last week, an $8 million hospital in Sunshine was put to the market.

But while attention to healthcare property has largely been recent, the sector is well populated with investors: syndicates and institutions amongst them.

Private investors, many who have made their wealth from within the healthcare industry, are prominent buyers, too, according to Jimmy Tat, CBRE’s Asian market specialist within the healthcare division.

“Many both domestic and international investors our team deals with have a particular focus on healthcare investments broadly which can include GP clinics, dentist or aged care facilities,” Mr Tat said.

How is healthcare property different from office or retail?

Often it isn’t.

A medical professional can set up a practice in an office or retail space – and if this property were listed for sale, it would be on the radar of investors seeking healthcare-related assets.

CBRE’s specialist healthcare agent Marcello Caspani-Muto said that “like office and retail property, healthcare occupiers often seek location in central areas which are well connected to both public transport and amenity.”

This is why healthcare assets sometimes occupy sites with a high underlying land value.

“However often most important of all is the property’s proximity to complimentary medical offerings,” Mr Caspani-Muto said.

“These act as feeders for healthcare operators with consumers in today’s marketplace concerned with convenience above all else.

What is the state of the healthcare investment market?

The Victorian Comprehensive Cancer Centre (front) is one of the newest buildings in Parkville’s hospital precinct.

For a variety of reasons, population growth amongst them, the state of Australia’s healthcare property market is strong and growing.

An ageing demographic, and a community which has also recently seen a baby-boom, is resulting in the need for healthcare services across aged care and child care, too.

CBRE director Sandro Peluso said the healthcare sector, in Australia, is evolving to adapt the changing demographics, technology and consumer expectations.

According to the Australian Bureau of Statistics, 15 per cent of the nation’s population is aged over 65 years.

“Forecast to increase exponentially, this figure is expected to reach 22 per cent by 2056, equating to 8.7 million Australians,” Mr Peluso said

“With an older population more likely to claim the benefits of health insurance, this translates to an ongoing improvement in demands for medical services”.

The nation’s population is projected to double, totalling 46 million by 2075, according to Mr Caspani-Muto.

“In the shorter term the country’s population is expected to reach 36 million by 2050, an increase of more than 10 million people from Australia’s last record level of 24.13 million.

“With a greater number of residents comes an increased requirement for medical services, adding to the already significant level of healthcare demand expected from the country’s ageing population.

Healthcare property drivers

High underlying land value, favourable zonings

This former medical centre in Vermont, east of Melbourne, was marketed to developers, as well as investors and owner-occupiers.

Central sites, often oversized to accommodate customer car parks, put healthcare related property with imminent lease expiries on the radar of apartment and townhouse developers.

Some healthcare related sites occupy Capital City 1 zoned plots, which allows for multi-story, mixed-use developments including apartments.

Last year, developer Hamton acquired the recently vacated Cotham Private Hospital in Kew – a 2245 square metre hectare holding which was also targeted to healthcare occupiers and investors.

Last week we reported that the producers of hit TV show The Block bought the former Andrina Nursing Home in Brighton. Five unrenovated homes will now be moved to this 2775 square metre Brighton site and renovated for the show’s 2020 series.

Healthcare businesses can become long-term tenants

Fit-outs for healthcare related businesses are not easy, or cheap, to replicate.

Often, more rooms require more sinks; more bathrooms may be needed; some rooms and doorways will need to be made bigger to fit in certain machinery and furniture, like moving beds.

Many sites will need permits for practitioners to work from there.

A complaint of some healthcare related owner-occupiers is how difficult it would be to relocate, even temporarily, so that they can rebuild their existing, outgrown, practice.

Developers, however, have taken note of the specialist needs of healthcare related businesses.

Last June, former Colliers International real estate agent turned builder, Tim Bolton, sold MS Limited a brand new four-storey office at 120 Thames Street, opposite the Box Hill Hospital, permit-ready to operate with 20 specialists.

The move resulted in MS Limited earlier this year listing for sale its outgoing and much larger office and community building, known as its ‘Nerve Centre’, in Blackburn.

Security of occupancy is something medical professionals realise is valuable, too.

Daniel Hirsh, the principal of Consult Solicitors and a lawyer who works for businesses in the healthcare sector, said “several clients of mine built up their medical practices then sold their property tied to a lease back to their practice”

Mr Hirsh said the ‘sale/leaseback structure, which is commonly used for office, retail and industrial property, “allows practitioners to continue to operate…after the sale, and at the same time free up capital or retire debt.”

“It is a compelling set up for investors because their tenant has often put years into building up the practice, has worked intimately with the local community, and has a vested interest in the ongoing success of the business.

“This translates to a reliable return.”

Valuable permits

Some healthcare assets have valuable permits which differentiate them from office and retail investments, Josh Twelftree, agent with CBRE’s Victorian Health, Aged Care and Child Care division, said.

“The majority of healthcare properties sold require a specific medial permit in order to be operated as clinics or dentists,” Mr Twelftree added. “We have seen permits ranging from one to 15 practitioners, with this number often predicated on the properties on-site parking allowance”.

“In unique circumstances some healthcare related properties are allowed to trade for longer hours than your standard retail and amenity.

“The granting of these operational practices comes down to location and more often than not the operator’s willingness to do so.

“Given most 24 hour practices are bulk billed, the financial incentive for staff to work these longer hours is often not in place,” Mr Twelftree said.

“This makes 24 hour offerings incredibly rare within the current investment market. ”

Healthcare supply

Construction of the Victorian Heart Hospital has commenced in Clayton.

Healthcare related development often falls under the umbrella of community space within Victorian precinct structure plans and master-planned projects.

In recent years, the government has announced new hospitals, including a replacement Footscray Hospital in the inner-west, and the Victorian Heart Hospital, construction of which started late last year, on Monash University’s Clayton campus.

Healthcare is also expected to play a prominent part in the $5 billion redevelopment of La Trobe University, in the northern suburb of Bundoora.

New hospitals and medical centres have been built, or are under construction, across the state.

Healthcare providers are also prominent in many shopping centres.

Healthcare investor demand


At the priciest end – many Australian real estate trusts provide healthcare assets which would be ordinarily out of reach for its small and ‘mum and dad’, individual investors.

According to Mr Twelftree these investors also benefit from a consistent income stream.

“For REITs, the strength of the medical sector was solidified during the GFC when healthcare returns remained steady while value in other “staple assets declined significantly,” CBRE Research said.

“Simply, REITs are designed to generate profit in the form of capital growth and rental income. “

“With a long-term history of investment, many of the country’s largest REITs choose to capitalise on medical assets in the formulation of a balanced portfolio”.

“For REITs, the strength of the medical sector was solidified during the GFC when healthcare returns remained steady while value in other staple assets declined significantly,” the report added.

“As such, healthcare assets are seen by both private and institutional investors as ‘recession-proof’.

Last October, we reported that RAM Group spent $11.25 million on its first asset for a new trust, Australian Medical Property Fund. RAM Group is seeking investments worth between $5 million and $100 million for that fund.

“Any asset we look at needs to have at least 50 per cent of rental income from medical-related tenants,” RAM Group head of Real Estate, Will Gray, said at the time.

“This could include GP clinics, day hospitals, overnight hospitals, specialist facilities or allied health providers such as dentists, physiotherapist or ancillary medical service providers such as pharmacies”.

The Australian Medical Property Fund requires asset occupancy rates of more than 90 per cent and for a significant portion of tenants to be on leases with more than five years to run.

Private investors

Private investors, either individually or in partnerships, within the past decade, have shown an increased appetite in healthcare property investments, according to CBRE.

The property class attracts individuals keen to diversify their portfolios from the traditional office, retail and industrial groups.

Mr Twelftree said the agency has seen a substantial increase in the number of private and local and international investors transacting a number of freestanding medical centres ranging in value from between $2 million to $22 million.

Interest has intensified over the past three years, the broker added.

“As a result, we are beginning to see healthy turnover within a space that has long been undervalued with consistent media attention generating more informed buyers”.

Aged care accommodation providers

Aged care accommodation providers often outbid developers for stock: in recent years acquiring former primary schools expected to wind up in the hands of a townhouse builder, in Keilor and Avondale Heights.

An ex-reception centre in Essendon, permitted for townhouses was snapped up in 2016 by retirement home operator Arcare for $13.5 million – 35 per cent above initial price expectations.

Last week, we reported that Japara spent about $10 million for three residential homes abutting its Elanora complex in Brighton. Two of these homes were being offered as one to developers, permit-ready for eight townhouses.

Healthcare occupier rental demand

CBRE said healthcare tenants are typically less prominent than other occupiers seeking retail space “given the level of specialising and training often required to operate a successful practice”.

Local practices would usually be canvassed by agents when a developer is proposing a purpose-built facility in an area.

“More recently we have begun seeing some increased activity from larger operators who are looking to establish a number of full-service offerings include of GP, dental, radiology and etc,” Mr Twelftree said.

“However, healthcare leasing activity is still well below standard practices which is another factor making investment in this asset class so popular, given how valuable these tenants are.”

Medical professionals will often themselves develop a healthcare facility.

Mr Caspani-Muto said the sector is well represented with a strong number of medical professionals investing in healthcare property to re-model and occupy themselves.

A marketing image of Cranbourne Health. The complex has stood on the the site for 30 years. It is for sale as an investment generating annual rent of $1.3 million.

Healthcare owner-occupier demand

There is no rhyme or reason to the accommodation decisions recently made by healthcare related users in Melbourne.

Last year, the Australian and New Zealand Intensive Care Society signed a lease in Camberwell and sold a small office it occupied in Carlton.

MS Limited, instead, opted to continue owning its accommodation, buying a brand new office as its headquarters, in Box Hill, then listing the one it was going to vacate, in Blackburn.

Recent major sales

Source: CBRE/

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Marc Pallisco

A freelance property analyst and journalist, Marc is a co-founder of

Marc Pallisco