The Stability of Private Hospital Strata Suites in the Face of Varying Cash Rates

By Nicolas Milner

In the dynamic environment of commercial real estate, the sector of private hospital strata suites stands as a paragon of stability. Despite the fluctuating cash rate, a critical lever for economic adjustment, private hospital strata sales have demonstrated remarkable resilience. This can be attributed to the specialised and inelastic nature of the market, driven by the essential need for healthcare facilities.

The attached graph provides a clear depiction of the trends over a period from 2008 to 2023. It reveals that the price per square meter ($/SQM) of private hospital strata suites has maintained a steady climb, with only minor fluctuations that seem to disregard the trends of monetary policy.

This counterintuitive trend can be understood through the lens of market inelasticity. Healthcare, being an essential service, generates a demand for real estate that is less sensitive to changes in interest rates. Medical professionals and healthcare providers require strategically located, well-equipped spaces to offer their services, which are necessary regardless of economic conditions. Consequently, the demand for private hospital strata suites remains constant, even as other sectors might contract under increasing cash rates.

Moreover, the supply of such specialised facilities is limited, further supporting prices. The development of private hospital strata requires significant investment, not only in terms of capital but also time, due to the stringent regulations and specific requirements necessary for healthcare properties. This limitation on supply coupled with its inelastic nature means that even as the cash rate rises, reducing the affordability of borrowing, the demand for these properties does not wane significantly, leading to sustained or even increased prices as seen in recent years.

The trajectory of the $/SQM in the graph is accompanied by a dotted line representing the linear trend, which shows a consistent upward trend over the years. This indicates that, over the long term, the value of private hospital strata suites has grown consistently, undeterred by the cash rate’s volatility.

The strength and resilience of the private hospital strata market are defined by its essential role in healthcare, limited availability of properties, and its necessity, making it particularly appealing for medical specialists considering owner operation. For medical professionals looking to establish or expand their practice, this sector offers a unique opportunity. With the market’s consistent capital growth due to its scarcity, private hospital strata suites represent not just a stable choice, but a strategic investment in their future, safeguarded against the unpredictable nature of the economy. This positions them advantageously within the essential healthcare services sector, where demand remains constant regardless of broader economic fluctuations.

* Prices in this article are sourced from Pricefinder and cash rate information from the Reserve Bank of Australia (RBA). RWC Medical is not responsible for any inaccuracies or reliance on this information.

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