http://www.businesstimes.com.sg/arch...s-dtz-20140929

Published September 29, 2014

Demand-supply mismatch fuels surge in medical suite prices: DTZ

Recent rule change sees non-medical practitioners joining market

By lee meixian

[email protected] @LeeMeixianBT


[SINGAPORE] Prices and rents of medical suites are on the rise and expected to keep increasing, given strong demand amid under-supply, DTZ said in a recent report.

These private clinics, increasingly housed in commercial buildings rather than private hospitals, are also shrinking in size, going below 600 sq ft in newer developments in a bid to make them more affordable to investors on a quantum basis, it noted.

Only until recently were non-medical-practitioners allowed to buy certain medical suites; the sector has grown in appeal to developers and investors alike, thanks to their freedom from the restrictions of any current property cooling measures.

But these investments can be rather pricey, with the capital value of medical suites at Orchard Road/Tanglin averaging S$6,730 psf as at end-2013, while those of prime retail and office space averaged S$4,710 and $2,700 psf respectively.

Outside the town area, prices of medical suites are much lower. For instance, in 2010, Mount Elizabeth Novena saw medical centre units initially sold for S$3,500 to S$4,000 psf.

"This gap has since widened as at end-2013 as prices of transacted medical suites in Orchard Road/Tanglin have risen at a faster pace," DTZ said.

Much of the surge in prices happened between 2010 and 2013, when prices of medical suites rose 60 per cent. In comparison, those of prime office and retail space grew by only 15 per cent and 30 per cent over this period, which shows medical suites' resilience to economic trends and business sentiment, DTZ said.

This shouldn't come as a surprise. "After all, the healthcare sector is less correlated with the state of the economy, and more a function of a country's demographics," said Yong Yean Chau, CEO of Parkway Life Reit, which owns medical suites at Mount Elizabeth (Orchard) and Gleneagles. He added that the Reit's suites are fully leased out.

Singapore's population is becoming more affluent - and crucially - more aged. The demand is further fuelled by an influx of foreigners who travel here to seek medical treatment, drawn by Singapore's reputable integrated healthcare system.

The number of doctors in the private industry has also grown 3.3 per cent on a compounded average growth rate (CAGR) basis from 2009-2013.

And yet the current stock of medical suites stands at just 1,520 units, with no known new supply from now until 2016, said DTZ.

Mirroring the surge in capital values, rental growth was most pronounced in the prime Orchard/Tanglin area, particularly for those integrated as part of hospitals.

This is because the hospitals can provide them medical and logistical support - especially important for critical medical specialties such as cardiology, neurology and oncology, DTZ said.

Monthly rents range from S$8-12 psf in the Novena/Thomson area and S$8-10 in the Farrer Park/Race Course Road area - an up-and-coming area for medical suites following Farrer Park Medical Centre's completion as part of the mixed-use development Connexion in April this year.

The rental range in Orchard/Tanglin is the widest, from S$9 psf at Orchard Medical Specialists Centre (Lucky Plaza) to S$27 psf at Mount Elizabeth (Orchard) Medical Centre.

Mary Sai, executive director of Knight Frank, has reportedly said that their rental yields - at about 3-3.5 per cent - are comparable to strata-titled offices and shops.

"Shoebox" strata medical units are also surfacing as developers "try to squeeze more per-square-foot dollar out of the space", said SLP International executive director Nicholas Mak.

This is not unlike how some private homes and industrial spaces have shrunk in size to become more appealing to investors more concerned with owning property than considering their usability.

Some units at the newer medical suites at Royal Square and Vision Exchange, coming onstream in 2017 and 2018, have shrunk to sub-600 sq ft, DTZ said.

Medical suites at Far East Organization's Scotts Medical Center (at Pacific Plaza), Novena Medical Center and Novena Specialist Center also start from about 500 sq ft, although they do go up to over 1,000 sq ft on the other end.

The smaller size may restrict the usability of the medical units, DTZ said. "Certain medical specialities require the use of machinery and equipment that occupy a substantial amount of space, while others may require more storage space or a separate waiting or recovery room."

For this reason, these "shoebox" units may see a slower take-up rate if the space does not cater to the end-users' needs, given that it can also be challenging to combine units, it added.

But their smaller purchase quantum continues to draw keen investors. For instance, of Far East Organization's 48 medical suites at SBF Centre, launched for sale in March 2013, all but one unit - the largest one - have been sold. Sizes start from 678 sq ft.

Full research report is available on BTInvest (http://www.btinvest.com.sg/property)