Healthcare to drive property investment, JLL says

Demand for hospitals and healthcare facilities is increasing across the Mena region, driving prospects of more private investment as governments look to ease public spending, JLL said.

Property developers in the Mena region are continuously looking at alternative asset classes. Health care is under-developed relative to an ageing and increasing population in the region. That in conjunction with the rise in medical tourism presents investment opportunities for developers.

“Medical tourism industry is a US$50bn market globally and the health care goes way beyond the medical tourism," said Craig Plumb, the head of research Mena at the property specialist JLL. "It is part of the social infrastructure - soft infrastructure - that UAE has realised the importance of ... and the Government is trying to seek more investments into that.”

The JLL report said the combination of strong demand for healthcare facilities and reduced returns from traditional real estate sectors has pushed more real estate investors to consider the healthcare sector as part of the general move towards alternative asset classes.

With a growing Mena population, to maintain the current provision rate of 1.9 hospital beds per 1,000 people, an additional 10,500 beds, equal to 70 new hospitals, will be needed in the five major cities across the region by 2022, the report said.

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It's not just large hospitals that are garnering interest among potential investors. Big developments are increasingly integrating clinics and other medical facilities within retail and office spaces.

Mr Plumb said specialised hospitals  require very particular developers to provide funding.  "The other end is fairly generic – clinics basically. Look at Dubai Mall, the clinic there is fourth or fifth-biggest user of space there ...  there is no reason why developers like Emaar and others would not invite healthcare facilities into its residential developers," he said.

Alternative sectors allow investors to diversify their portfolio and improve the overall risk-return profile, JLL said in its report. "Both retail and institutional investors are seeking greater exposure to non-correlating alternative investments that provide consistent income with low volatility," it said.

With the decline in oil prices, which has hit the budgets of oil producing countries, more private companies are entering certain sectors. The UAE, for instance, has opened more avenues for private sector investment to help to ease the burden on public funds.

The  use of public-private partnerships (PPPs) has been seen in the energy, construction and infrastructure sectors; however, it has been limited in the healthcare industry. Mr Plumb said that was likely to change. "[The] more private sector money [governments] can attract the better. This the reason we are seeing private-public partnerships being set up," he said.

The JLL report said the medical real estate sector is appealing to investors because it is resilient and a long-term, single-let asset with minimal asset management required.

While demand is set to grow across the Mena region, Mr Plumb said Saudi Arabia offered most scope at the moment.

“I think the opportunities for the [healthcare] real estate sector are probably bigger in Saudi Arabia than they are in the UAE and that’s partially because of the size of the economy and partly because the healthcare sector is already heavily influenced by the private investors.

"The short term opportunities are in Saudi cities like Riyadh and Jeddah," he said. "The PPP law is also under way as well in the kingdom. It is work in progress.

“In Saudi the government will privatise some the existing healthcare facilities and they are looking to expand and modernise and they are looking at private capital to do that. Ministry of health has tenders out already.”

In this country, Mr Plumb forecast that real estate investment trusts (REITs) would probably lead the charge.

"We have already seen the first education based REIT in the country and it’s only a matter of time before we see a healthcare-based REIT," he said, adding that this would give smaller investors a chance to invest in these sectors as well.

"It is very difficult for a small investor to actually invest in a hospital development,” he added.

“I think we may see one or more than one healthcare-based REIT in the market. There is room for that and it expands the market.”