Health, Life Science Lead Opportunities: JLL

Healthcare and life sciences will provide some of the biggest opportunities for investors in the alternative real estate sector in the coming year, according to JLL.

JLL’s Alternative Investments Outlook 2023 report found that alternative transaction volumes remained elevated over the past four years.

It valued the sector last night year at approximately $235 billion. 

Of those, life sciences and healthcare—described as “one of Australia’s sought after” sub-sectors—could be the biggest hitters in 2023, according to JLL head of alternative investments and strategic consulting Noral Wild. 

“The appetite for those markets has been so strong in recent years and there is probably a shortage of stock relative to that appetite, so it is growing because of that imbalance between demand and supply.” 

Longer lease terms and government support of healthcare expenditure are key motivators for investors seeking exposure to the sector.

“Upward population trends and advances in medicine are also driving this growth in healthcare,” Wild said.

“But the overall bigger focus on health and wellness and mental health aspect is becoming huge.” 

Globally, life sciences have been lauded as the saviour of struggling commercial real estate investors, particularly in the US and in the UK, where Canary Wharf Group and developers Kadans have launched plans for a $879 million ( £500 million), 23-storey life sciences building in the heart of London.

While the Australian market may not quite be able to reach such heights, there are certainly investor opportunities in the sector going forward, Wild said.

“It is predominantly the people who have invested and are interested in healthcare who are turning their attention to life sciences,” she said. 

“But it’s still a niche and relatively small market in Australia, we don't have a huge venture capital market in Australia, it tends to be underpinned by governments rather than entrepreneurs. 

“There is a lot of speculation that life sciences could be the solution for commercial assets that have high vacancy rates, but I don't necessarily subscribe to that. Successful life science assets are either located within a medical precinct or university, or ideally linking into both.”

▲ New entrants to the student accommodation sector include Brookfield which acquired its first development site in Melbourne to seed a targeted $500-million portfolio.

Meanwhile, even though student accommodation was one of “the hardest hit sub-markets during the Covid crisis period”, 2022 saw a resurgence with new investors entering the market while existing investors solidified their positions. 

There is one particular state which is and will continue to exceed expectations. 

“At the moment Queensland student accommodation is outperforming everywhere and everyone's expectations, it is going through the roof,” Wild said.

But while these are the major areas of growth in the alternatives sector, almost all subsectors have “compelling demographic or structural tailwinds".

Built-to-rent continues to attract “a high-level of interest” with a growing development pipeline supporting a strong growth trajectory, with 21,700 confirmed build-to-rent units in the pipeline on top of approximately 4500 operational units. But it still remains in its “early development stage”.

“We anticipate fund-though opportunities to increasingly emerge across the Australia build-to-rent sector. Fund throughs allow residential build-to-sell developers with suitable sites who do not have operational or asset-holding capabilities to engage in the sector,” the report said. 

Aged care and senior ‘lifestyle communities’ also have potential, although in the former, many acquisition plans were put on hold as a result of the new aged care funding model which came into effect in October 2022.

Elsewhere, the Australian data centre market remains in the ‘development-intensive’ phase along the pathway to sector maturity, but JLL expects it to be an area of opportunity for investors.

The alternative sectors have not been immune to the challenges of 2022 amidst growing global uncertainty and rising financing costs with many acquisitions delayed  as market participants re-align their pricing expectations. 

“However, as market uncertainty subsides, we expect capital to continue to persevere allocation strategies towards alternative sectors,” the report said.