Social infrastructure is emerging as the newest player on the block of commercial property sectors. The term encompasses everything considered essential to a healthy, happy life – from aged care and disability services to physical education and rehabilitation providers, childcare facilities, government services, education and even the local vet.
With many of these assets, the appeal for investors is underpinned by high levels of government funding. For instance, 2022/2023 federal government funding for healthcare will hit around $105.8 billion or 16.8% of total expenditure, according to figures gathered by leading boutique commercial property agency Burgess Rawson. Economic instability in recent times has further helped drive investment in healthcare leading to total funds under management across real estate in the sector to almost double to $18 billion between 2020 and 2022 alone. When it comes to early education and childcare, around $4.7 billion has been allotted by the federal government with extra going to individual states.
Solid tenancies
Then there is the strength of tenancies – generally stable, in-demand businesses with high turnovers that can create an asset that delivers a lower risk than shares and remains defensive against economic downturns. “Typical tenants in these assets provide annuity style income with annual increases,” says Burgess Rawson Partner Shaun Venables. “Even whilst interest rates increased in the past few years for instance, medical assets continued to transact. Burgess Rawson’s sales volume turnover increased by 15 per cent over 2022. We also saw yields compress on average from 5.54 per cent to 5.45 per cent.”
It's not just agents lauding what is being tagged an emerging super-sector. Infrastructure Partnerships Australia estimates the social infrastructure sector to be worth around $40 billion judging by the number of housing, justice, education projects as well as hospital and other health facilities on the drawing board. Furthermore, about 20 per cent of Australians will be aged over 65 years by 2031 according to the Committee for Economic Development (CEDA) – up from the current 16 per cent. The National Disability Insurance Scheme is also the country’s second most expensive social program after the aged pension. Costings for the NDIS over 2022/2023 are estimated at $35.8 billion.
Growing areas
Specialist Disability Accommodation is one of the fastest growing areas across the sub-sectors that fall under the umbrella of social infrastructure. SDA is designed specifically for those with high support needs and their numbers are increasing. “SDA has become the second largest government funded industry under the NDIS,” Mr Venables said. “As an asset class the SDA market is forecast to grow to between $10 billion and $12 billion by 2030.”
One of the most significant sales within this area in the last year was the $5.5 million purchase of a former 48-room aged-care home in the Melbourne suburb of Preston by a private investor rather than an established healthcare provider. The purchaser who bought the site through CBRE did so with the express intention to convert the property into specialist disability accommodation.
CBRE advises those intending to do the same to recognise the importance of outdoor areas that are designed to “align with the surrounding community”. Such projects must also meet criteria outlines within NDIS SDA Design standards.
Social infrastructure is emerging as the newest player on the block of commercial property sectors. The term encompasses everything considered essential to a healthy, happy life – from aged care and disability services to physical education and rehabilitation providers, childcare facilities, government services, education and even the local vet.
With many of these assets, the appeal for investors is underpinned by high levels of government funding. For instance, 2022/2023 federal government funding for healthcare will hit around $105.8 billion or 16.8% of total expenditure, according to figures gathered by leading boutique commercial property agency Burgess Rawson. Economic instability in recent times has further helped drive investment in healthcare leading to total funds under management across real estate in the sector to almost double to $18 billion between 2020 and 2022 alone. When it comes to early education and childcare, around $4.7 billion has been allotted by the federal government with extra going to individual states.
Solid tenancies
Then there is the strength of tenancies – generally stable, in-demand businesses with high turnovers that can create an asset that delivers a lower risk than shares and remains defensive against economic downturns. “Typical tenants in these assets provide annuity style income with annual increases,” says Burgess Rawson Partner Shaun Venables. “Even whilst interest rates increased in the past few years for instance, medical assets continued to transact. Burgess Rawson’s sales volume turnover increased by 15 per cent over 2022. We also saw yields compress on average from 5.54 per cent to 5.45 per cent.”
It's not just agents lauding what is being tagged an emerging super-sector. Infrastructure Partnerships Australia estimates the social infrastructure sector to be worth around $40 billion judging by the number of housing, justice, education projects as well as hospital and other health facilities on the drawing board. Furthermore, about 20 per cent of Australians will be aged over 65 years by 2031 according to the Committee for Economic Development (CEDA) – up from the current 16 per cent. The National Disability Insurance Scheme is also the country’s second most expensive social program after the aged pension. Costings for the NDIS over 2022/2023 are estimated at $35.8 billion.
Growing areas
Specialist Disability Accommodation is one of the fastest growing areas across the sub-sectors that fall under the umbrella of social infrastructure. SDA is designed specifically for those with high support needs and their numbers are increasing. “SDA has become the second largest government funded industry under the NDIS,” Mr Venables said. “As an asset class the SDA market is forecast to grow to between $10 billion and $12 billion by 2030.”
One of the most significant sales within this area in the last year was the $5.5 million purchase of a former 48-room aged-care home in the Melbourne suburb of Preston by a private investor rather than an established healthcare provider. The purchaser who bought the site through CBRE did so with the express intention to convert the property into specialist disability accommodation.
CBRE advises those intending to do the same to recognise the importance of outdoor areas that are designed to “align with the surrounding community”. Such projects must also meet criteria outlines within NDIS SDA Design standards.
Innovation afoot
Childcare centres and especially those with swimming centres and other health and fitness facilities attached or close by are also among the up and comers. An investment that falls under the social infrastructure umbrella, for instance, includes the Swimmerz Academy in the southern Sydney suburb of Caringbah. Currently on the market through Kieran Bourke at Burgess Rawson, the asset comprises an established swim school with rehabilitation and recreation facilities attached. Currently rented at close to $365,000 per annum, it comes with a 10-year lease to 2028 plus options, plus compounding 5 per cent annual rent increases that by 2027 will equate to a yearly income of $465,392.
Social infrastructure providers are also innovating to make their assets more attractive. “The co-location of swim schools with childcare centres for instance is proving highly lucrative for providers while maximising outcomes for parents,” Mr Venables said. “Combining these services is a way for operators to future-proof their assets in preparation for possible federal government funding in the future.”
Childcare centres and especially those with swimming centres and other health and fitness facilities attached or close by are also among the up and comers. An investment that falls under the social infrastructure umbrella, for instance, includes the Swimmerz Academy in the southern Sydney suburb of Caringbah. Currently on the market through Kieran Bourke at Burgess Rawson, the asset comprises an established swim school with rehabilitation and recreation facilities attached. Currently rented at close to $365,000 per annum, it comes with a 10-year lease to 2028 plus options, plus compounding 5 per cent annual rent increases that by 2027 will equate to a yearly income of $465,392.
Social infrastructure providers are also innovating to make their assets more attractive. “The co-location of swim schools with childcare centres for instance is proving highly lucrative for providers while maximising outcomes for parents,” Mr Venables said. “Combining these services is a way for operators to future-proof their assets in preparation for possible federal government funding in the future.”