LMW Link. Medical Activity Report ~ October Highlights. For more information

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1 Highlights As at June 2015 there were 12,034 health care and social assistance businesses located across greater. The total number of persons aged over 50 years in greater was highest in s South with 96,086 persons. This was followed by Logan Beaudesert with 92,947 and Ipswich with 90,213. Logan Beaudesert with 135,949 persons is anticipated to have the greatest number of those aged over 50 years. This is followed by Ipswich with 126,178 persons and Moreton Bay North with 120,823 persons The current supply pipeline of proposed medical centres across greater currently appears healthy with the majority of additional space anticipated for completion over the next few years located in the inner city, Logan Beaudesert and South Regions. According to a recent report The Property Council/IPD Australia Quarterly Healthcare Property Index published by the Property Council of Australia and IPD Australia & New Zealand (June 2016), the annualised total investment return for the year ending June 2016 was 23.2%. This result was above the annualised investment return to June 2015 of 18.5%. Cap rates for the health care sector have firmed 100bps from 8.4% in June 2015 to 7.4% in June For more information Helen Swanson Queensland Research Director helen.swanson@lmw.com.au Paul Robbins Managing Director - paul.robbins@lmw.com.au

2 Geography, Scale and Size Medical centres or specialists typically benefit from clustering. There are various examples of this across the greater region. Benefits from clustering include: Improved productivity outcomes Knowledge spill overs As outlined on the website Companies in clusters gain access to specialised regional suppliers, service providers, and institutions and also can benefit from deep pools of skilled employees and shared infrastructure dedicated to their need. The below image shows the count of health care and social assistance businesses by region across in June According to the Australian Bureau of Statistics there were a total of 12,034 health care and social assistance businesses located across the greater region as at June This has increased from 10,847 in June 2013 and 11,489 in June inner city had the largest number of businesses with 3,500 followed by south with 2,452. Number of Health Care and Social Assistance Businesses June 2015 Source: ABS,

3 Demand Drivers Population Growth and Projections Strong demand from the ageing population is driving growth in the medical services sector across greater. The below table shows the number of persons aged over 50 years by age group and greater region. The total number of persons aged over 50 years was highest in s South with 96,086 and additionally the highest proportion of the total population at 41%. This was followed by Logan Beaudesert with 92,947 and Ipswich with 90,213. Number of Persons aged over 50 years by Age Group and Greater Region 2015* Total South 38,921 28,915 22,226 6,024 96,086 Logan Beaudesert 38,722 30,995 19,766 3,464 92,947 Ipswich 37,844 27,741 20,440 4,188 90,213 Moreton Bay North 29,796 28,583 23,184 4,541 86,104 East 31,590 25,412 18,499 4,573 80,074 North 25,022 19,470 17,171 5,020 66,683 Inner City 27,423 18,520 12,286 3,550 61,779 West 22,526 17,574 12,967 3,424 56,491 Moreton Bay South 23,510 17,551 10,557 2,028 53,646 Total 275, , ,096 36, ,023 Source: ABS, *preliminary numbers as at 30 th of June The below table shows projections of those aged over 50 years by age group and greater region as at June The positions in terms of those regions with the greatest number of those aged over 50 years in 2025 is anticipated to change slightly compared to the above table showing estimates for In first positon Logan Beaudesert with 135,949 persons is anticipated to have the greatest number of those aged over 50 years. This is followed by Ipswich with 126,178 persons and Moreton Bay North with 120,823 persons. Projected Number of Persons aged over 50 years by Age Group and Greater Region 2025* Region Total Logan -Beaudesert 50,084 41,164 37,338 7, ,949 Ipswich 49,584 33,505 37,085 6, ,178 Moreton Bay North 33,974 40,137 40,775 5, ,823 South 44,048 32,643 29,978 6, ,446 East 36,756 34,398 29,107 6, ,366 North 29,894 20,054 22,321 5,793 78,062 Moreton Bay South 28,386 24,264 17,899 3,094 73,643 West 23,668 18,440 17,654 5,652 65,414 Inner City 29,236 17,505 14,268 3,272 64,281 Total 325, , ,425 49, ,162 Source: ABS, 3235, *medium series data. 3

4 The below graph shows the average annual population growth rate of those aged 50 years and over by greater region from 2001 to As can be seen from the below graph the strongest growth rate in population occurred for those aged 85 years plus in the Moreton Bay South region recording just over 8% average annual growth rate from 2001 to Also in the Moreton Bay South region the year age group was the second strongest recording a growth rate of just under 8%. The only group to record negative growth across the regions over the period were the year age group located in Inner City region. 9.00% Number of Persons 50 years and Over Average Annual Growth Rate % 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% - East - North - South - West Inner City Ipswich Logan - Beaudesert Moreton Bay - North Moreton Bay - South Source: ABS,

5 The below graph shows the average annual growth rate of population projections for those aged over 50 years by greater region. The year age bracket located in the Logan Beaudesert region is anticipated to experience the greatest growth from 2016 to 2025 recording just over 6% per annum over the period. This was followed by those also aged years in the Ipswich and Moreton Bay South region each representing just under 6% per annum over the period. 7.00% Number of Persons 50 years and Over Average Annual Growth Rate % 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% East North South West Inner City Ipswich Logan - Beaudesert Moreton Bay North Moreton Bay South Source: ABS, Government Incentives / Federal Funding Medicare is currently federally funded and covers part or in some instances all cost of a trip to a GP and or specialist. Federal funding for medical services makes GP / specialist services more affordable to patients therefore supporting demand. IBISworld estimates that federal funding for Medicare will rise by a compound annual rate of 4.3% over the five years through to As noted by IBIS world the GP medical services industry is highly insulated from external forces such as consumer sentiment and disposable income trends because a significant portion of patient costs are covered by Medicare enabling steady revenue growth. Number of Births Women in their child bearing age are substantial users of medical services. Pregnant women will more often visit a GP as their entry point to seeing a specialist operating from a hospital. Consequently a slow-down in the birth rate can adversely impact upon the demand for medical sector services. IBIS world research shows that the birth rate over is anticipated to grow at a marginally slower rate than that of the previous year. 5

6 Supply Pipeline Examples of recently completed and or anticipated for completion by 2017 medical centre developments across greater include: Bult Drive Medical Centre & Showrooms, Brendale (1,760 sq m NLA & 70 car spaces) Woolworths MountView Shopping Centre, Redbank Plains with medical centre (400 sq m NLA) South Queensland Centre of Excellence in Indigenous Health Care, Inala The Nest Commercial & Retail Convenience Centre, Fitzgibbon Wellington Point Medical Centre (2,439 sq m NLA) Crockford St Medical Centre, Northgate (1,460 sq m NLA) Morayfield Medical Centre Conversion (13,500 sq m NLA) Some of the major works to be completed or undertaken (either approved or early planning stages) on hospitals across greater include: Herston Quarter Health Precinct Master planning and redevelopment of the Herston site including the Royal Children s Hospital. Sunnybank Private Hospital Upgrade Additions Construction of 2 storey building to accommodate medical specialist consulting suites. Northlakes Private Hospital and Medical Centre, Northlakes Construction of a new specialist medical centre as part of Stage 1 of the development (5,829 sq m NLA) plus private hospital (Stages 3 and 4). Wesley Specialist Centre Construction of 3 level speciality centre with support rooms and consulting services. Retail tenancies on ground floor. Private Hospital, Spring Hill redevelopment and refurbishment of premises. Belmont Private Hospital extension, Belmont. St Andrews Private Hospital, Ipswich Extension project (7,714 sq m). Woolloongabba Health Precinct Construction of a new 8 and 12 storey medical facilities across 2 buildings. A graphical summary of the pipeline of all medical centres/specialist facilities and or new hospital developments currently in planning, approval or application stage across greater region are shown in the graph overleaf and includes projects with an anticipated completion date from September 2016 to January

7 Inner City Moreton Bay North Moreton Bay South Logan -Beaudesert Ipswich West South North East Greater Medical Centres and Specialists Future Supply by Region ,000 20,000 30,000 40,000 50,000 60,000 70,000 Source: Reed Cordells, 2016 Development Application Development Approval & or Construction Early Planning 7

8 Queensland Medical Centre Investment Trends The Australian property market is continuing to evolve, with specialised market sectors emerging and performing in line and in some instances above that of traditional property assets, this has been evident with the Healthcare property sector. As seen by the below graph the impact of the global credit crisis on commercial property was striking. Whilst health care wasn t immune the impact was muted when compared to other commercial property sectors shown in the graph below. Total Return for All Property and Healthcare Annualised Returns to December 2012 Source: The Property Council / IPD Australia Quarterly Healthcare Property Index. Some key points in relation to medical centres as an investment class include: Stable tenant profile Competitive property yields Growing demand for medical centres According to a recent report The Property Council/IPD Australia Quarterly Healthcare Property Index published by the Property Council of Australia and IPD Australia & New Zealand (June 2016), the annualised total investment return for the year ending June 2016 was 23.2%. This result was above the annualised investment return to June 2015 of 18.5%. The sector delivered annualised income return of 8.2% and strong capital growth of 14.0%. Hospitals and medical centres returned 22.7% and 27.5% respectively. Cap rates have firmed 100bps from 8.4% in June 2015 to 7.4% in June

9 Total return for All Property and Healthcare annualised returns to June 2016 Source: The Property Council / IPD Australia Quarterly Healthcare Property Index. Healthcare tenants are also driven by different market forces compared to commercial and retail tenants who are more vulnerable to economic fluctuations. This market is predominately driven by population growth and demand is further compounded by the increase in an ageing population which have be shown to have a higher dependency on medical services. The below table shows a list of selected freestanding medical centre sales across Queensland. As can be seen from the table most freestanding medical centre sales are achieving initial yields under 8%. The capital values range from $904/sq m to $6,927/sq m and rates will vary according to the size of the centre and the location. Selected Freestanding Medical Centre Sales & or Hospital Address Date Price ($) NLA $/sq m Benabrow Av, Bribie Island Bellara Sep-16 2,300, $2,477 na 7.36% 188 Sunshine Blvd, Mermaid Waters Aug , $4,078 1,017 VP 146 Mackenzie St, East Toowoomba May-16 2,400, $4,152 2,188 na 2 Drury Av, Southport Apr-16 1,175, $4, % 200 McLeod St, Cairns City Feb-16 1,402, $ VP Portfolio Sale - Highland Park, Parkwood & Logan Central Feb-16 23,900,000 3,638 $6,570 na 7.01% 428 Hume St, Centenary Heights Dec , $3,434 1,595 VP 2 Lake St, Varsity Lakes (Gold Coast Surgical Hospital) Nov-15 45,700,000 6,476 $7,057 5, % 96 Neil St, Toowoomba City Nov-15 2,071, $2,170 1, % 1311 Gympie Rd, Aspley Jul-15 7,453,000 1,076 $6,927 3, % Source: Rpdata, 2016 & LMW Research. na not applicable and or not available at time of release. Land Area (sqm) Initial Yield 9

10 The below table outlines selected medical suite sales across Queensland. As can be seen from the table the initial yield for health care centre suites sold are generally sub 7.50%. Rates per square metre for the centres range between $4,165/sq m and $12,885/sq m. Selected Medical Suite Sales Address Date Price ($) NLA $/sq m Initial Yield 5/621 Wynnum Rd, Morningside Jun , , % 7/82 Queen St, Southport May , , % 301/11 Eccles Bvd, Birtinya May-16 1,995, , % Ltos 406 & 407 Mar-16 1,671, ,527 VP 47/40 Chasely St, Auchenflower Jan-16 1,340, ,885 VP 32/18 Hastings St, Noosa Heads Jan , , % 140, 141, 202 & Wickham Tce, Spring Hill Jan , ,615 VP Suite 6 and 7, 6 Waterfront Pl, Robina Nov-15 1,838, , % 4/49 Butterfield St, Herston Oct-15 2,000, , % 451A Coronation Dr, Auchenflower Oct , ,333 VP Lot Carrara St, Benowa Oct , ,604 VP 7/ Colburn Av, Victoria Point Oct , , % 39 White St, Southport Sep-15 1,300, ,591 VP 465 Wickham Tce, Spring Hill Sep , ,556 VP Lot 2/ 956 Gympie Rd, Chermside Jul-15 3,980, , % Lot 3/ 956 Gympie Rd, Chermside Jul-15 2,809, , % 39/11 Manning St, South Jul , , % 111 Newdegate St, Greenslopes Jun , ,029 VP 6/259 McCullough St, Sunnybank Jun , ,018 VP 23/5 Innovation Wy, Birtinya Jun , ,169 VP 204,238,302, &303 /33-37 North St, Spring Hill* May , ,530 VP 107/53 Endeavour Bvd. North Lakes Apr , , % Source: Rpdata, 2016 & LMW Research. *analysis including car parks. The current low interest rate environment and competitive property yields has meant there are now opportunities for owner occupiers to expand their practice through property. Additional space can be leased to other complementary service providers that may allow for business growth and provide additional revenue. There is also evidence of a greater number of purchasers funding their investment through their own selfmanaged super fund to build their retirement strategy around the business property. In summary, healthcare properties as an investment class that offer a long lease with stable income stream can provide a lower risk profile than other property sectors as they are less sensitive to current economic and market fluctuations. Looking ahead, there should be strong demand for healthcare services due to Australia s projected population growth, particularly from older age groups whom have a greater dependency on health services. 10

11 For further Information please contact the office. LMW Level 4, 120 Edward St CBD QLD 4000 T: (07) E: No part of this research report or any reference to it may be included in any other document or reproduced or published in any way without the written approval of the form and context in which it is to appear. No liability is accepted for any loss or damage (including consequential or economic loss) suffered as a consequence of fluctuations in the property market subsequent to the date of the report. The opinion herein is relevant as at the date of survey only and no warranty can be given to the accuracy of the opinion at any point during the date of the report. The research report is current as at the 1 st of October The opinions herein may change significantly and unexpectedly over a relatively short period including as a result of general market movements or factors specific to the survey area and property classes, the opinions expressed in this research report are that of the researcher and is authorised by LMW. Liability limited by a scheme approved under Professional Standards Legislation. 11