The life sciences and healthcare sectors are becoming a priority for real estate investors
The prevalence of real estate transactions in the life sciences and healthcare sectors has increased dramatically in recent years – and for good reason.
Wednesday, August 31, 2022, 4:26 p.m.
by Sally Lindsay
Research from Colliers International shows that the sector has key fundamentals, including:
- An aging population and increasing life expectancy;
- The increasing prevalence of chronic and communicable diseases such as Covid-19, and
- The increase in people’s attitudes towards personal health and well-being.
It’s growing demand that’s driving increased leasing, development and investment activity in this less important part of the non-residential sector, says Chris Dibble Colliers International, Director of Strategy and Advisory.
The life sciences sector can be diverse in nature but mainly encompasses the fields of biotechnology, pharmaceuticals, biomedical technologies, health technologies and medical equipment, as well as botanical and environmental sciences.
“Investor appetite for specialty assets such as life sciences facilities and healthcare centers is growing as they venture further afield in search of properties with strong underlying demand and attractive returns in the market,” says Dibble.
“Investors are optimistic about these assets due to their link to demographic trends, broader insulation from negative economic trends, stable cash flow from long-term leases, portfolio diversification with the benefit to achieve social goals.
The latest Colliers Global Investor survey highlights this rise. The results for the Asia-Pacific region show that life sciences ranked third in terms of investor interest, while the primary and secondary healthcare sectors ranked 6th and 7th respectively (and 2nd if the results are combined).
Dibble says that while an increased level of buyer inquiries and selling activity is expected to follow, there are barriers and challenges to increasing the level of deal flow. “Key to this is the specialist knowledge and strategic alliances needed to successfully invest in these sectors which also tend to cluster geographically around key nodes of expertise and infrastructure.”
While strong demand fundamentals support the sector’s burgeoning growth, investors are also aware of the positive financial and social goals that can be achieved, as well as diversification and insulation from broader negative economic conditions, says- he.
New Zealand’s life sciences and healthcare sectors are not as advanced as some other major markets such as Australia, the US, the UK and Asia, but many progress is being made locally, suggesting it is only a matter of time.
“As the industry continues to grow and evolve over the next few years, an awareness of the benefits of the industry and a thorough understanding of market dynamics are becoming increasingly important for all players in the industry. real estate,” says Dibble.
The aging population needs more health services
New Zealand is just one of many countries around the world facing a shift in the age structure of its population resulting from accelerating numbers of older people and declining fertility rates.
According to the latest data from Statistics New Zealand, between 2022 and 2028 the number of people aged over 65 will increase by almost 20%, to around one million. This is expected to reach around 1.3 million people by 2040 and around 1.5 million people by the 2050s.
This means that while around one in six people in New Zealand are over 65, this will increase to around one in four people over 65 by 2050.
This will translate to around 30 people aged 65 and over for every 100 people aged 15-64 by 2040 and by 2050 this could reach a 40/60 split.
Global health expenditure is increasing due to the aging of the population, the increase in life expectancy, the fight of governments and institutions against chronic and infectious diseases and the increased emphasis on health and The well-being.
A review of recent OECD data highlights that out of 52 countries globally, New Zealand is above average in terms of total health expenditure as a percentage of GDP from 2019 to 2021.
It’s not just government spending on health, but the growth of the private health insurance industry that’s contributing to the increase in spending, Dibble says.
While a number of community benefits are provided through government subsidies and allowances, private health insurance is skewed towards higher income earners, with the Department of Health reporting in 2015 that more than 60% of people earning more than $100,000 had private health insurance, according to IBIS World News. Almost one in 10 New Zealanders earned more than $100,000, according to 2018 census data.
As a result of Covid-19, people’s interest in their own health and well-being is increasing significantly, further adding to the sub-components that drive healthcare spending.
New Zealand’s huge monetary response to global virus infections
The rise in globalized virus infections continues, as do efforts by governments to combat negative financial and economic outcomes. Although not the only infectious disease of recent times, Covid-19 is the most recent situation with such a large and globally connected social and fiscal response.
At the start of 2020, the Institute of International Finance noted that nearly US$18 trillion had been spent globally to fight Covid-19, a number that has now been surpassed as the pandemic continues to affect counties at different 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 among the biggest spenders of advanced economies during the pandemic. assessment of additional expenses and lost income.
While the majority of fiscal spending was provided through employer and employee support, spending in the life science and healthcare industries was also a key driver supporting the expansion of the sector.
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