Top 5 Medical Property Investment Mistakes in Australia (and How to Avoid Them)

The Top 5 Medical Property Investment Mistakes (and How to Avoid Them)

Medical real estate continues to attract investor interest across Australia due to its essential-service characteristics and typically resilient tenant demand. However, “medical” is not a uniform asset class. Clinic performance, tenant stability and lease structure vary significantly — and investors can overpay or inherit avoidable vacancy risk when they assess medical property like standard commercial real estate.

Below are five common medical property investment mistakes we see, and practical ways to de-risk each one.

1) Relying on headcount instead of doctor FTE

A clinic may present as “well staffed” on paper, but the real indicator of operational strength is full-time equivalent (FTE) doctors — not the number of providers on the roster. Many GPs work across multiple sites, meaning a five-doctor clinic may only represent two to three FTE.

What to check

• Ask for FTE numbers, not total practitioners
• Confirm sessional rosters, hours, and consulting room utilisation
• Understand whether the clinic can support patient demand without bottlenecks

How to avoid it

• Request a clear breakdown of FTE by provider and typical weekly sessions
• Speak with the practice manager to validate patient flow and peak utilisation
• Ensure the clinic has a sustainable operating base (often stronger when multiple FTE GPs underpin throughput and service diversity)

2) Buying an outdated medical centre with fit-out obsolescence risk

Clinical environments age faster than standard offices. Consumer expectations, technology requirements, accessibility standards and modern workflow design mean many corporate operators refurbish or relocate on a cycle — particularly where a building cannot economically keep up.

What to check

• The age and condition of the fit-out (clinical rooms, reception, waiting, amenities)
• Whether the tenancy presents as best-in-class relative to competing clinics nearby
• The tenant’s historic relocation/upgrade pattern (where available)

How to avoid it

• Inspect whether the fit-out is current, well maintained and compliant
• Assess the building’s ability to support service upgrades (power, HVAC, hydraulics, data)
• Consider the competitive landscape: if newer centres are opening nearby, outdated layouts can accelerate tenant churn at expiry

3) Not assessing long-term viability of the practice model

Not all clinics have the same revenue resilience. Billing strategy, patient mix, local demographics and practitioner retention all influence sustainability — and in turn, the tenant’s capacity to service rent and commit long term.

What to check

• Whether the clinic is bulk-billing, mixed-billing or private
• Exposure to margin pressure where costs rise faster than revenue
• Depth of practitioners and ability to recruit/retain clinicians

How to avoid it

• Stress-test the operating model: if heavily bulk-billing, ensure sufficient FTE and strong local demand
• Prefer assets where the tenant has a sustainable billing structure and a service mix that supports stable cashflow
• Consider catchment drivers: population growth, age profile, nearby hospitals and health infrastructure

4) Overlooking subleasing and co-location rights (pathology and allied health)

Many medical centres enhance tenant profitability — and improve patient experience — by co-locating services such as pathology, imaging, physiotherapy, dentistry and other allied health. If the lease restricts subleasing or licensing arrangements, it can limit the tenant’s ability to evolve the model and maintain competitiveness.

What to check

• Lease provisions around subleasing, licensing, assignment and permitted use
• Whether the premises has adequate space, layout and approvals for complementary services
• Any landlord consent triggers and timeframes

How to avoid it

• Review subleasing clauses early (prior to exchange) with specialist advice
• Ensure the asset can accommodate additional income lines for the tenant
• Consider commercial pragmatism: allowing sensible co-locations can support tenant retention, which often protects income more than small short-term rent trade-offs

5) Weak security: inadequate guarantees and tenant protection

The largest downside risk for investors is an unexpected vacancy event — particularly if there is limited recourse under the lease. Medical tenancies can be operationally complex to re-let, so lease security matters.

What to check

• Bank guarantee and/or director guarantees
• Tenant entity structure (operating company, holding company, franchisor/corporate support)
• Lease term, options, make-good, and default provisions

How to avoid it

• Ensure the lease is supported by an appropriate bank guarantee and/or personal guarantees (where commercially achievable)
• Seek visibility over tenant fundamentals such as tenure, clinician depth, and patient demand indicators
• Prioritise longer WALE outcomes through strong lease terms and renewal options

Final thoughts: invest like a specialist, not a generalist

Medical property can be a high-quality, defensive investment — but only when it is underpinned by sustainable clinical operations, contemporary facilities, flexible lease settings and appropriate security.

At RWC Medical, we apply specialist healthcare property expertise to help investors de-risk acquisitions, assess tenant fundamentals, and identify assets that can support long-term retention and performance.

Require expert guidance on a medical property investment?

Contact RWC Medical on 1800 717 674 or rwcmedical@raywhite.com.