Demand soaring for industrial, healthcare commercial property sectors
The regional manager of a multinational development consultancy has identified the healthcare and industrial commercial real estate markets as the ones offering property investors the best prospects in 2023 and beyond.
While the outlook of commercial property in general is divided, there is no doubt that some sectors are flourishing as investors assess the impacts and implications of COVID.
Lui Violanti, Regional Manager of Inhabit Group and Chairperson of Asia Property Awards Australia, identified the two commercial markets with the most promising growth prospects as the industrial and healthcare sectors.
Writing for API Magazine, Mr Violanti said the growth of onshoring and an increase in e-commerce purchases, Australia’s industrial sector is currently on an upward trajectory and has been for the past two years, with soaring demand for warehouse space.
With industrial vacancy rates dropping to 0.8 percent, Australia has the tightest logistical market in the world.
Australia is ahead of other countries, including Sweden at 1.1 percent and Hong Kong at 2.3 percent.
When analysing the trajectory of the healthcare real estate market, there are many factors contributing to favourable growth prospects. Some are due to the country investing and preparing for an aging population, longer life expectancies, and subsequent rising demand for medical services.
Real estate owners and fund managers now see the sector in a new light, enabling it to become a more competitive investment market, with mergers, acquisitions, and joint ventures now a common theme.
Most of the demand for these sectors is from occupiers looking to expand their business. They have been scrambling to get more warehouse spaces but are confronted with a scarcity of options.
Meanwhile, institutional owners have set their sights on healthcare assets, particularly in capital cities. Rapidly expanding suburban areas are in demand due to suitable demographics, growing population, and high rates of development activity.
Smaller private investors, on the other hand, who are hoping to diversify their portfolio with healthcare, have shifted their focus to medical centres.
Commercial demand in 2023
Commercial property is currently garnering more attention by investors than ever. In recent times this has created rapid capital growth rates for the asset class. Some markets have grown in excess of 30 per cent over the last two years and are still growing, presenting investors looking to embellish or fund their retirement with a viable option.
Demand for industrial spaces is outpacing supply in capital cities, which is why rents for super prime industrial spaces rose 13 percent in the past year.
Demand for industrial space will likely surpass supply this year and into next year, which can lead to high pre-leasing tenure on new developments and can cause rental rates to surge.
For healthcare, the demand has affected pricing as well, with its assets having the lowest discounted rates out of all core property sectors, at 5.4 percent for healthcare compared with 5.6 percent for industrial.
Healthcare real estate accounts for 25 percent of the industrial market in Australia, according to JLL.
According to their latest report, the healthcare sector is forecast to be worth $41 billion by 2041. As investments in medical facilities cater to an aging population’s needs and the younger generation’s uptake of private health insurance, the sector is positioned to increase exponentially.
These two sectors are being deemed safer as defensive assets, which is contributing to a steady influx of investment demand and capital growth exceeding many traditional asset classes.