Why your super fund has a new appetite for real estate

Super and property funds, along with listed real estate investment trusts, are diversifying into aged care, medical, retail and build-to-rent properties as the values of their traditional office investments slump.

Healthcare dominates in terms of size and institutional investment. Nonetheless, there is a myriad of alternative property asset types attracting plenty of attention, from hospitality, hotels and pubs to marinas, service stations, educational, art and cultural facilities.

Daniel Hargraves, an investment manager at MA Financial, says that with compelling demographic and structural changes supporting improved demand drivers, alternative real estate is set to broaden its investment footprint.

“The market in Australia is estimated to be valued at $235 billion, and the assets are generally more defensive in nature. They have a greater ability to maintain and grow earnings against a backdrop of high inflation and a slowing economy,” he says.

Social infrastructure assets support the wellbeing and quality of life of communities. Backed by public expectations for improved access and recent government policy reforms, the sector includes private hospitals, medical centres, childcare and specialist disability services.

The “living” market segment is being driven by changing housing requirements and a broad undersupply of new housing. It includes build-to-rent apartments, student accommodation, retirement and lifestyle communities.

Alternative assets have become the investments of choice for many institutional players, with a record number of Boomers expected to retire in coming years, pushing up the values of aged care and medical assets.

A key driver in building new private medical centres and hospitals is long elective surgery waiting lists. In Victoria, elective surgery patients reached 203,045 in 2022-23. Similar trends were seen in New South Wales, with the patient list reaching 144,999.

Federal and state governments have categorised items such as medicinal costs, medical research and NDIS funding as important, reflecting increased government spending.

Australian Unity’s $3.9 billion healthcare property trust has purchased 7.5 hectares of land near the new Melton Hospital, which the Victorian government expects to open in 2029. Pending development approval, it plans to build a private hospital, healthcare and retail facilities in a mixed-use town centre.

Nicole Plant, assistant fund manager of healthcare property, said the acquisition is part of the trust’s strategy to deliver critical healthcare infrastructure to meet the needs of rapidly growing communities.

“Population growth in the City of Melton is outstripping all other areas in Victoria, recording a 6.4 per cent increase from 2021 to 2022. This isn’t expected to slow down, as by 2036 more than half a million people are set to join the growing western Melbourne population.”

A housing shortfall exists in Melbourne and Sydney, with more demand on the way from many overseas migrants forecast to arrive in the next three years, making build-to-rent apartments a major drawcard for institutions.

The federal government’s target for permanent migration in 2023-24 is 190,000 places, up from 160,000 in 2021.

Skilled worker migration and international students are likely to see Melbourne overtake Sydney as Australia’s largest city by 2031, with a population of more than 6 million.

AustralianSuper, the country’s largest super fund, is responding to cater for increasing housing demand by investing more than 90 per cent of the $405.3 million required to develop build-to-rent sites in Brunswick, Coburg and Footscray.

Health and community services super fund HESTA is also putting up $240 million in the build-to-rent market via new fund manager Super Housing Partnerships.

“We have the opportunity to innovate and invest to meet an unmet need, providing our members with risk-adjusted investment returns by improving housing supply,” HESTA chief executive Debby Blakey said.

The fund will initially focus on developing more than 1600 social and affordable houses, specialist disability housing and commercial build-to-rent properties in Victoria.

CBRE’s healthcare and social infrastructure team of Sandro Peluso, Kai Wang and Jimmy Tat say ready-to-go medical facilities are receiving significant interest, with lack of supply meaning that tenants are putting their location preference second on their priority lists, while focusing on attaining a suitable building first.

“We are finding that, with the rise in [interest rates], operators are experiencing difficulties acquiring funds to build and fit-out the expensive infrastructure needed for a day hospital, so are searching for existing facilities,” Peluso said.

In Sydney, a former aged-care facility owned by St Basil’s aged care in Annandale with medical potential sold under the hammer for $17.25 million.

Located at 252 Johnston Street, the 2893-square-metre property was offered for sale vacant possession, and comprises an 83-room building with development approval to expand the floor area, plus an additional level.

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