‘Rapacious' demand sends healthcare land prices soaring
“Rapacious” demand from institutions for key health precinct development sites is forcing prices up to potentially unprofitable levels, according to Australasian Property Group, which is soon to complete a $100 million private hospital in Brisbane.
Australasian is in advanced planning to build a larger, 25-storey facility next door and, following a strong response to its initial 10-storey Herston Private Hospital development, now 70 per cent leased, has been hunting for further opportunities.
But the high price and scarcity of Australian sites adjacent to major medical infrastructure, such as the Royal Brisbane and Women’s Hospital in the Herston health care precinct, mean Australasian is now looking at the United Kingdom and Europe.
Director Ian Jordan said Australasian became interested in the medical sector five years ago when it was beginning to “heat up” as a real estate play with the goal of locating facilities near big hospitals that could act as a major source of referrals.
“Our rationale was that anybody can do allied health or GP clinics in a strip mall but not many people can develop sophisticated hospital infrastructure,” Mr Jordan said
“Through COVID we’ve seen backing up of elective surgery. That has then led to enormous waiting lists and the only way to clear that waiting list is through a public-private partnership.”
In such situations, large public hospitals may refer simple procedures to nearby private facilities to clear the backlog, enabling them to carry out more complex and time-sensitive surgeries.
Mr Jordan said although strategic sites in Australia have historically been “few and far between”, there is now greater competition for those that do come on the market.
“We have certainly looked in the UK for similar opportunities [and] we’re also looking in other parts of Europe to effectively take this as a model and build out a number of these types of assets throughout the world,” he said.
“It doesn’t mean we have stopped looking in Australia. However, what we’re finding is the institutional funds out there are very, very dynamic and quite rapacious when it comes to sourcing those sites.
“We’ve looked at a number of these types of opportunities and have missed out, only because our own internal analysis believing the purchase prices were too high.”
He estimated land costs have increased 30 per cent to 40 per cent in the past three years and that build costs are up 30 per cent over the same period.
Construction has now finished on the 10-storey Herston Private Hospital, the internal fit-out is progressing and the facility is due to open in the next three months.
“Stage two is likely to be a mixed-use development targeting key worker accommodation as well as a hotel and expansion of the current medical facilities,” Mr Jordan said.
