‘Once-in-a-Decade’ Opportunities Rise in Wake of Healthscope Collapse
Originally appeared in The urban developer
Healthscope’s collapse has been labelled a death knell for the private healthcare sector, but investors remain confident in its strong, long-term fundamentals.
The private healthcare operator of 38 hospitals, day surgeries, rehabs and clinics went into receivership on Monday (May 26), calling in McGrathNicol to handle its affairs.
Owner Brookfield Asset Management, which has not commented on the collapse, acquired the operator, billed as “best-in-class” and the second-largest private hospital operator in Australia, for $4.1 billion in 2019.
But the highly leveraged operator faced industry-wide challenges including workforce constraints, an imbalance between elevated costs and private health insurance reimbursements, and a shift towards day surgeries.
Real Asset Management head of healthcare real estate Sam Wood says that the Healthscope situation may be headline-grabbing, but should not be considered a yardstick by which to measure the whole industry.
“This is a specific brand with its own issues,” Wood told The Urban Developer.
“The whole sector was exposed to inflation in hospital services, which, in general, has been 4.7 per cent over the last four or five years, compared to average CPI of about 3.6 per cent.
“But you leverage that up, as Brookfield did, and you have exposure to debt which has increased from 2 to 6 per cent in that time … you’re going to have nowhere to run.”
In fact, despite these woes, healthcare sits in the middle of the pack, coming in 10th of the 20 categories the Australian Bureau of Statistics considers in its insolvency data.
The sector experienced 374 administrations in the year to May 11, 2025, compared to the construction industry’s 3055 insolvencies.
RAM group chief executive Scott Kelly says that it can be frustrating when all private health is lumped into the same category as Healthscope.
“The whole sector is solid, it has really good fundamentals and that’s a sector you want to be in as a real estate person.”
A buyers’ market
Investor interest in Australia’s private healthcare sector has been keen for many years, but as Brookfield’s cash splash on Healthscope showed, market entry and expansion is expensive.
“In the last year or 18 months, we’ve seen softening of prices in line with the cash rate, but also just a little bit of noise around Healthscope and things like that has actually offered up an enormous buying opportunity,” Wood says.
“From an institutional investor point of view, and anyone that knows healthcare real estate … they are grabbing this window as a probably once-in-a-decade kind of buying opportunity.”
RAM itself is opening up the war chest.
“We are definitely net buyers of healthcare real estate, and we are aggressively pursuing the next 12 to 24 months those buying opportunities.”
It’s early days for Healthscope-operated assets.
Healthscope’s two major landlords are Northwest Healthcare Properties REIT and HMC Capital’s listed HealthCo Healthcare and Wellness REIT, having undergone several sale and leaseback activities during the past few years.
However, not all of the Healthscope portfolio would hold investor appeal.
“The Healthscope type of hospitals, [are] big and inflexible, and structurally, they’re not the healthcare of the future,” Kelly says.
“They represent the healthcare of the past. Day surgeries can now do 45 instead of 10 surgeries — you can go in and get your ACL done in about half the time it used to take, and that’s really impactful for their profitability.”
It’s why RAM has invested in a day-surgery-anchored development at Cleveland, in Brisbane — a $16 million, purpose-built surgical centre operated by Ramsay Health Care.
And international interest is continuing.
“We’re now seeing really strong demand, particularly from overseas capital, to come into the sector,” Kelly says.
“They’re seeing through the noise to the long-term attractiveness of the sector and want to take advantage of softness in asset prices.”
Headwinds
That’s not to ignore the challenges in the sector, which Centuria Healthcare managing director Andrew Hemming says have been persistent.
“[These challenges] largely resulted from increased operating costs, which haven’t translated into better patient outcomes,” Hemming says.
Restricted immigration has led to higher-than-usual wage inflation, with increased costs for capital equipment, he says.
Compounding this are increased building costs that have impacted operators, who are generally responsible for hospital repairs and maintenance, as well as the higher cost of debt from rising cash rates.
“In short, private hospital operators are facing unprecedented rising costs and restrictive revenue,” Hemming says.
“[And] investors are now warier of models of care, and types of real estate assets, that are old and unsustainable. Real estate investors are looking at models of care that produce sustainable outcomes—financially and operationally.”
But new models can be challenging, because it “requires new thinking and new people”, Hemming says.
“The capital required for a new hospital is material so many operators will use existing assets beyond the asset’s typical lifetime,” he says.
“This can translate into inefficiencies of care for patients, particularly when considering the lengths of stay in a hospital.”
Strong fundamentals
Despite this, robust fundamentals, including ageing populations, increases in chronic diseases and improvements in diagnostics, are counteracting shorter term challenges.
Private hospitals represent 41.2 per cent of hospitalisations in the market, up from 40.3 per cent pre-Covid, and around 70 per cent of elective surgeries.
“That’s not going anywhere — it plays an extremely important role in our healthcare system,” Wood says.
But investment is needed in sustainable models of care, according to Hemming.
“Investors are looking for investments that can outpace inflation and remain sustainable from a cash flow point of view.”
New models, such as Centuria’s Adeney Private Hospital that is 51 per cent owned by 42 doctors and 49 per cent owned by insurers Medibank, are under way, and public-private partnerships are also increasing, Wood says.
“You will see more public contracts in private settings. The private sector delivers really good, efficient healthcare, and the public sector will require a bit of lifting from the private sector, which, again, means more real estate demand for private healthcare.”
Diversity of offering is also proving key to RAM’s strategy, such as at its Cleveland project which has a 1500sq m day surgery-anchored building with specialists, GPs, radiology and allied health all in the 5000sq m development.
It taps into trends that see 74 per cent of patients in private hospitals stay for less than 24 hours.
“It’s an end-to-end healthcare solution, and that gives us diversity across the tenant profile and the ability to drive rents,” Wood says.
Preventative and mental health and telehealth are also important to consider in ongoing strategies, Wood says.
“Now we know that the likes of telehealth is very complementary to bricks and mortar.
“But from a real estate point of view that means more flexible space needs to be built. Patients still need to be in that bricks and mortar setting.
“It’s about trying to develop, build and adapt real estate solutions to be flexible to what private healthcare delivers and what patients want.”
