Life sciences and healthcare sectors becoming a key focus for property investors

The prevalence of property dealing in the life sciences and healthcare sectors has grown significantly over the past few years - and for good reason.

Wednesday, August 31st 2022, 4:26PM

by Sally Lindsay

Colliers International’s research shows the sector has key fundamentals including:

An ageing population and increasing life expectancy;
The increasing prevalence of chronic and transferable diseases such as Covid-19, and
The rise in people’s attitudes towards personal health and wellbeing.

It is the growing demand that is leading to higher leasing, development and investment activity in this less prominent part of the non-residential sector, says Chris Dibble Colliers International strategic and advisory director.

The life sciences sector can be diverse in nature but mainly encompasses the fields of biotechnology, pharmaceuticals, biomedical technologies, healthcare technologies, and medical equipment, botanical and environmental sciences.

“Investors’ appetite for specialised assets such as life science facilities and healthcare centres are rising as they venture further in search of propeties with strong underlying demand and attractive market yields,” says Dibble.

“Investors are bullish about these assets because of their connection to demographic trends, broader insulation from negative economic trends, the stability in cashflow provided from long-term leases, portfolio diversification with the benefit of meeting social objectives.”

The most recent Colliers Global Investor survey highlights this rise. The results for the Asia Pacific region shows life sciences was ranked third highest in interest from investors, while primary and secondary healthcare sectors were ranked 6th and 7th respectively (and 2nd if the results were combined).

Dibble says while an increased level of buyer inquiry and sales activity is expected to follow, there are barriers and challenges to increasing the level of deal flow. “Key to this is the specialised knowledge and strategic alliances needed to invest successfully in these sectors which also tend to cluster geographically around key nodes of expertise and infrastructure.”

Diversification

While strong demand fundamentals support the burgeoning growth of the sector, investors are also conscious of the positive financial and social objectives that can be met, as well as diversification and insulation from broader negative economic conditions, he says.

New Zealand’s life sciences and healthcare sectors are not as progressed as some other major markets such as Australia, the United States, United Kingdom, and Asia, but many advancements are being made locally suggesting it’s only a matter of time.

“With further growth and evolution in the industry over the next few years, an awareness of the sector’s benefits and an in-depth understanding of market dynamics is becoming increasingly important for all property stakeholders,” says Dibble.

Ageing population requires greater healthcare services

New Zealand is just one of many countries globally facing a shift in its population age structure arising from the acceleration of older people and lower fertility rates.

According to the latest data from Statistics New Zealand, between 2022 and 2028, the number of people aged 65-plus will increase by almost 20%, reaching about one million. This is projected to reach about 1.3 million people by 2040 and about 1.5 million people by the 2050s.

This means that while about one in every six people in New Zealand is above the age of 65, this will increase to about one in every four people being over the age of 65 by 2050.

This will result in about 30 people aged 65-plus for every 100 people aged 15-64 by 2040 and by 2050, this could be as much as a 40/60 split.

Global healthcare expenditure is rising as a result of ageing populations, increased life expectancy, governments and institutions tackling chronic and infectious diseases and the greater focus on health and wellbeing.

A review of recent OECD data highlights that out of 52 countries globally, New Zealand is above average in total healthcare expenditure as a percentage of GDP over 2019 to 2021.

It is not only public health expenditure, but growth in the private health insurance sector that is contributing to rising spend, says Dibble.

While a number of community benefits are provided through government subsidies and allowances, private health insurance is skewed towards higher income earners, with the Ministry of Health reporting in 2015 more than 60% of individuals earning more than $100,000 holding private health insurance, according to IBIS World information. Almost one in 10 New Zealanders earned more than $100,000, according to data from the 2018 Census.

As a consequence of Covid-19, people’s interest in their own health and wellbeing is increasing significantly, adding further to the sub-components boosting health expenditure.

New Zealand’s huge monetary response to global viral infections

The rise in globalised viral infections continues, as does the efforts from governments to combat negative financial and economic outcomes. While not the only infectious disease of late, Covid-19 is the most recent situation with such a major globally connected social and fiscal response.

In early 2020, the Institute of International Finance noted that almost US$18 trillion has been spent globally on tackling Covid-19, a number which has now been surpassed as the pandemic continues to affect counties at various levels.

New Zealand’s fiscal policy response to the pandemic has been well documented, and a review of IMF data shows that as a percentage of GDP, New Zealand is amongst the biggest spenders in the advanced economies when assessing additional spending and foregone revenue.

While the majority of the fiscal spending has been delivered via support for employers and employees, spending in the life sciences and healthcare industries has also been a key feature supporting the sector’s expansion.

Tags: commercial property