As Australia’s ageing population presents great challenges for the economy it also places healthcare assets of all types among the most alluring of investments. The government’s sixth Intergenerational Report released last month forecasts the number of people aged over 85 years to triple in the next 40 years while numbers of those aged 65-and-up double. The aged care industry could almost double as a result, to the point where it accounts for around 15% of gross domestic product by the early 2060s.

The industry basically comprises three parts - aged care, retirement village and retirement living. The latter two are flourishing while the aged care segment continues to be shaped by regulatory changes and the federal government’s $3.9 billion reform package addressing recommendations from the 2018 Royal Commission into aged care quality and safety.

Undersupply worries

According to CBRE however, there is a ‘clear current and forecast undersupply’ of both retirement and aged care assets. Transactions involving former senior’s living style properties have soared in the past two years, and by the end of 2023 CBRE analysts expect even current volumes to be surpassed judging by sales activity across Queensland and NSW so far. The same has also been seen across Victoria since 2020.

For instance, CBRE has a 113-bed aged care home for sale in the Melbourne suburb of Donvale. Interest from private investors however has far outweighed that of aged care providers and owner/occupiers, said Marcello Caspani-Muto, CBRE’s associate director of Healthcare & Social Infrastructure Australia.

“This aligns with my concerns the market is going to be drastically undersupplied with high quality care opportunities within the next five to 10 years,” Mr Caspani-Muto said. “The broader country still has not seemed to recognise no new projects are taking place due to development feasibility issues.

“This property will likely be purchased by a hospital conversion buyer or a private second tier care provider focussing on Asian based care. The issue here is with second tier providers operating across the private side of the market there is a lack of government regulation and compliance requirements which are required to maintain high quality levels of care.

“They will focus on NDIS and high-income earners but will not be able to match the quality of care received by a large listed or non-profit provider. In our view the only solution is improvements in government funding to support the sector back to profitability and encourage operators to re-develop again and quickly.” Similarly, Queensland’s Tanah Merah Village, billed as the largest and highest quality vacant Retirement or Aged Care asset offered to market in Australia, attracted strong interest from both private and institutional buyers during its campaign Mr Caspani-Muto said. More than six offers were received - but it appears the asset will not be utilised for aged care.

Other buyer types

There are several types of buyers other than residential aged care operators circling properties such as these. Rehabilitation and mental health providers are high on the list, this asset class forecast to see great expansion in coming decades. “These healthcare providers often convert vacant aged care homes to modern hospital standard,” Mr Caspani-Muto said. “Given current building and regulation guidelines, vacant homes and hospitals form a natural union with a conversion and are significantly more cost effective than a new build. There are several differences between the two categories [aged care homes and hospitals but none are insurmountable. Typical changes revolve around fire protection systems and more.”

Providers of National Disability Insurance Scheme (NDIS) and Specialist Disability Accommodation (SDA) are also rising in number at a similar rate. “This is driven by continual increases in the funding and release of homecare packages,” Mr Caspani-Muto said. “As the number of new and experienced providers increase their presence in the sector so do their partnerships with developers and investors. Changes focus more on the conversion of an aged care home into an apartment style complex.”

Less common are buyers looking to convert aged care facilities into medical centres and consulting suits. But they still exist mainly because such assets “allow for substantial consulting rooms with individual shower and bathroom amenity to attract specialists and patients alike”.