Specialist Health Named Top Opportunity for 2023

Mental health, life sciences and pharmaceuticals could be the healthcare subsectors to watch as more traditional asset classes are treated with caution in 2023.

“Healthcare is still going fairly strongly, while there are obviously some headwinds in the office sector,” Centuria head of development André Bali, who will be a panellist at The Urban Developer’s Australian Property and Economic Outlook in Sydney on February 9, said.

“There are a couple of reasons underlying that growth. Covid saw a lot of people not electing to have surgery, so there’s been a huge build-up and that is starting to flow through to demand. 

“The government has aggressively invested in public health and there is direct overflow from that into private healthcare as well.” 

In fact, the Australian government is estimating spending on health in 2022–23 to reach $105.8 billion, representing 16.8 per cent of total expenditure. 

There are certain elements of the healthcare space which look set to offer potential for growth, with CBRE, for instance, forecasting life sciences market capitalisation to grow to $24 billion by 2031.

“Subsectors within that like life sciences, pharmaceuticals and medical production are seeing a level of sophistication now that we haven’t seen before. 

“There is growth in the mental health space as well. That’s very topical at the moment and at Centuria we’re investing in mental health facilities and doing some joint ventures in that space.”

Centuria Healthcare Property Fund first diversified into mental health real estate in 2021, acquiring the $50.1 million Perth Clinic mental health hospital and a $12 million mental health outpatient centre in Victoria as part of a portfolio acquisition worth $167 million in 2021.

But not every subsector of healthcare is expected to experience such growth.

Despite the aged-care sector generating more than $28 billion in annual revenue in 2020-21, according to the Department of Health and Aged Care, there are regulatory changes causing uncertainty in the sector.

▲ Pharmaceuticals are among the subsectors Bali sees as potential diversification opportunities in 2023.

The Australian Government has introduced legislation, including the Aged Care Funding Instrument in 2022, which will see a substantial funding uplift to residential care providers, but with ongoing changes in the industry it seems less secure than in previous years.

“With aged care it’s a waiting strategy until the government makes the changes it needs to make,” Bali said. 

“That subsector is under stress, but the theme is that Australians are getting older and they are relying on the healthcare system.” 

There were also some interesting areas of opportunity outside the standard asset classes, Bali said.

“Agriculture for us will be strong. The big picture is that the demand for Australian produce continues to grow.

“A 50 per cent increase in exports is forecast by 2030, which is a significant number.

“The adoption of technology in that sector is increasing efficiency with regards to things like water and security, and there’s a lot of AI going into agriculture which is making that production more reliable, improving quality, reducing waste and it’s also environmentally beneficial.”

Diversification of the business has been key to Centuria’s success, Bali said, which has been beneficial in the difficult few years and the challenges to come.

“The office market has been under some pressure but it has held up surprisingly well. It’s been difficult over Covid but we can’t see employers abandoning the office market,” Bali said. 

“We are seeing some significant rises putting a lot of strain on businesses as far as cost escalations go. As investors, they’re more cautious. 

‘But we’re seeing investor demand for our products and we’re forecasting a good year towards the backend of the year so we’re optimistic, but there will be challenges for the next six to 12 months.”

The Urban Developer presents its annual flagship in-person Australian Property and Economic Outlook series in Sydney, Brisbane and Melbourne.
Sydney | Thursday 9 February - click here
Brisbane | Thursday 16 February - click here
Melbourne | Thursday 23 February - click here