Institutional investor management of Australian healthcare property assets as a pandemic-proof asset class

Abstract

PurposeAs the prolonged effect of the COVID-19 pandemic has materially impacted investment returns significantly, it is more crucial than ever for institutional investors to redefine their property portfolios using assets with better investment management potential and meaningful diversification benefits. The “alternative asset revolution” is gaining traction in the property investment space internationally among institutional investors due to the shifting investment attitudes towards the alternative property sectors. Australia's $205bn healthcare property sector is at the forefront of this revolution due to its societal significance, as well as its attractive investment qualities. This paper investigates the institutional investor management of the Australian healthcare property sector via both the direct and listed channels and empirically analyses its investment attributes.Design/methodology/approachUsing the unique Morgan Stanley Capital International/Property Council of Australia quarterly data set for Australian direct healthcare property over 2006–2020, the risk-adjusted performance and portfolio diversification potential direct healthcare property and listed healthcare were assessed. A constrained mean-variance portfolio optimisation framework was used to develop a six-asset portfolio scenario to analyse the portfolio added-value benefits of both direct healthcare property and listed healthcare in a mixed-asset investment strategy. A similar set of analysis was performed using the post-global financial crisis (GFC) quarterly time series of 2009–2020 to investigate the healthcare asset class' performance dynamics in the post-GFC investment timeframe.FindingsThe results indicate that direct healthcare property and listed healthcare offer two key advantages for institutional investors in managing their property portfolios: (1) a stable yet superior risk-adjusted performance and (2) significant portfolio diversification potential in managing their property portfolios. Importantly, both direct healthcare property and listed healthcare provided valuable contributions in strengthening an investment portfolio's performance. The post-GFC sub-period analysis revealed a consistent conclusion regarding the healthcare asset class's performance attributes.Originality/valueThis is the first research that provides an independent empirical examination of the strategic importance of Australian healthcare property as a maturing alternative property sector that can serve both investment and environmental, social and governance goals of investors. This research presents a positive investment prognosis for the Australian healthcare property sector to achieve its institutionalised status as a mainstream asset class of the future.

The increasing importance of the alternate real estate sectors for institutional investors

“…Much of this research focused on operational issues for healthcare real estate, with limited empirical analysis. This empirical analysis did highlight the performance of healthcare real estate relative to the other asset classes for both the UK (Newell and Marzuki, 2018a) and Australia (Marzuki and Newell, 2022), with healthcare real estate seen as being an important component in the performance of the real estate portfolio for the optimal mixed-asset portfolio for institutional investors.…”

“…Brau and Heywood, 2008; Newell and Peng, 2006; Terris and Myer, 1995), healthcare real estate investment (e.g. Marzuki and Newell, 2022; Newell and Marzuki, 2018a), hospital/nursing home markets (e.g. Benjamin et al, 2007), healthcare infrastructure (e.g.…”

The impact of the COVID-19 crisis on global real estate capital flows

“…This now sees high-quality healthcare real estate facilities as an essential component for the social infrastructure for communities in all real estate markets. Newell and Marzuki (2018) have highlighted the increased institutional investor interest and performance of the healthcare real estate sub-sector, with Marzuki and Newell (2022) highlighting the robustness of the performance of the healthcare real estate sub-sector during the early stages of COVID-19.…”