JLL reports significant yield compression in Australian Healthcare real estate investment

Yields are predicted to tighten moderately in 2017

February 21, 2017

JLL's Australian Healthcare real estate Investment Review​ – H2 2016 reveals the significant yield compression recorded over the last four years from 2013 (8.4%) to 2016 (6.61%) based on Health Care Real Estate sales over $5M AUD.  With a moderate yield tightening predicted and ongoing offshore investment, JLL predict strong investment in healthcare real estate to continue in 2017.

The resilience of the Australia healthcare sector during the global financial crisis and the consistently higher yields relative to other asset classes has provided the ideal conditions for ongoing interest in healthcare real estate in Australia.  The lack of quality stock on the market has also played a significant role. Despite no private hospitals transacting, sales volumes surged in 2016 to record a high of $319.9 million reflecting the ongoing investment interest in medical centres. 

Whereas three years ago reported yields of sub-6.00% were almost unheard of in the healthcare sector, numerous medical centres transacted below this threshold in 2016. The $42.0 million sale of the GP Plus Healthcare Centre in the Adelaide suburb of Elizabeth to new market entrant Dexus Property Group was particularly notable on a reported yield of 5.78%. 

JLL's Head of Social Infrastructure,​ Noral Wild said 'The market is moving towards its peak and we are expecting a moderate tightening of yields in 2017, with yields for sub-prime assets in the 6% to 8% range whilst prime assets being in the 5% to 7% range. Interest will remain strong in the sector with AREITs continuing to search the market to further grow their portfolios and fulfil the appetite of retail investor, Ms Wild added.