Positive outlook for Hong Kong’s medical real estate

With growing health consciousness triggered by Covid-19, the healthcare market is ready to drive demand for real estate in the city.

April 16, 2021

A greying population, increasing life expectancy that comes with medical advances and growing health-consciousness are factors that offer immense opportunities to the healthcare market of Hong Kong. The healthcare industry has been an undeniable force in the city’s economy. For the year 2018-19, the city’s total health expenditure amounted to HKD 177 billion (USD 23 billion), accounting for 6.2% of the city’s GDP. The private sector health expenditure has also more than doubled over the last ten years to HKD 86 billion (USD 11 billion), growing at a CAGR of 7.4% and exceeding real GDP growth during the same period.

The growth of the healthcare sector has sustained demand for healthcare real estate. In Hong Kong, there are currently only a handful of pure healthcare real estate developments in the private sector, and they are mainly private hospitals or medical office buildings. Buildings designated for medical and healthcare tenants can include a wide range of medical professionals, from dermatologists and orthodontists to general practitioners and physical therapists. Commonly, it is office buildings with specified medical and healthcare zones that house healthcare tenants. Otherwise, healthcare practitioners are mixed with other general offices and semi-retail tenants within office buildings or located within shopping centres.

In terms of site selection criteria, convenience is a common consideration for the healthcare sector. Tenants typically prioritise ease of access to their facilities from the area where their existing or potential customers live and work. A convenient location contributes to a better overall customer experience and the likelihood that they will return and refer others. Furthermore, there has been a preference for operators to cluster with other healthcare facilities so that customers can gain access to a comprehensive and complementary range of healthcare facilities in the same geography.

Our data shows that a number of new office spaces that the medical sector committed in Hong Kong over the last ten years were mainly concentrated in the core commercial districts with easy accessibility, such as Tsimshatsui (35%), Central (28%) and Mongkok (14%).

Figure 1: New lettings in the medical sector by location (2011-2020)

Source: JLL

Size-wise, most of these tenants required relatively small premises of 2,000 square feet or below, which accounted for about 66% of new lettings by healthcare related tenants recorded over the last ten years, followed by those requiring 2,001-5,000 square feet (22%). Hence, we recorded most of the new healthcare lettings in non-Grade A office buildings, where smaller units are more commonly available.

Figure 2: New lettings in the medical sector by size (2011-2020)

Source: JLL

From investors’ perspective, healthcare real estate is typically almost recession-proof, and medical tenants are generally stickier. They prefer to stay in the same location to maintain a stable consumer relationship. Furthermore, while consumers may turn mindful of discretionary spending during a recession, they are less likely to cut back on the non-discretionary medical expenses. For some, medical services are covered by insurance. This is why healthcare real estate is usually considered a stable investment that provides steady occupancy and cash flow.

As people are much more health conscious than before Covid-19, the healthcare market outlook looks positive in Hong Kong, which should drive leasing demand for high-quality healthcare real estate with easy accessibility and offer user-friendly amenities, such as modern technologies and convenient vertical circulations.