By Pritu Makan
Healthcare REITs: Health(y) diversification benefit
Healthcare REITs, which play a vital role in the commercial real estate market, own, operate, manage, acquire, and develop healthcare-related real estate. These include senior living communities, hospitals, medical offices, outpatient facilities, life science innovation and research properties, as well as skilled nursing facilities. In general, the sector is underpinned by consistent demand and long-term leases with high-quality tenants. Healthcare providers, tethered to population hubs, are a "captive audience" for landlords, making healthcare real estate a resilient and stable investment option.
By providing real estate infrastructure that supports healthcare services, these REITs cater to an essential and growing sector with an aging population, particularly the rising over-80 cohort (or the "silver tsunami"), providing an additional tailwind. Demographic projections in the United States (US) show that the 65-and-over segment of the population is expected to grow at a faster rate than other age groups, expanding by 14.2% to comprise 71.6 million individuals in 2030 from 62.7 million in 2025 - the segment is expected to make up ~20.7% of the population by 2030, up from 18.6% in 2025. Trends are similar in other large economies and this demographic surge will essentially underpin demand for healthcare services and the specialised commercial real estate needed to deliver them. Similar trends are emerging on the local side with recent data from Stats SA showing that South Africa is currently undergoing a demographic shift that could reshape its future. While the country still has a relatively young population compared to many developed nations, declining birth rates and increasing life expectancy are steadily pushing the median age upward. Additionally, in many emerging markets, including South Africa, there is still room for growth in medical services as key metrics including doctor-to-patient ratios and hospital beds per individual remain below the global average.
Most REITs in this sector generate income by leasing their properties to healthcare systems and providers, often under triple net lease agreements. This type of lease model shifts responsibilities for maintenance, property taxes, and insurance to tenants, offering REITs a stable and predictable revenue stream — an appealing feature, especially in times of economic uncertainty. Some Healthcare REITs also manage their facilities, such as senior living communities, partnering with third-party operators to handle daily operations. In this situation, income is tied to patient housing and services, with earnings influenced by occupancy levels and market rates. These dynamics make Healthcare REITs a resilient and strategic choice for recession-resistant investments.
Healthcare REITs accounts for ~14% of the market capitalisation of the FTSE NAREIT All Equity Index according to recent data - this is more than quadruple the sector's weight in 2000. It was the third-best performing sector of 2024, posting a total return of 24.2%. This positive momentum has continued into 2025 with the sector being among the top performers (against other sub-sectors in the NAREIT index) with year-to-date total returns of ~11%.
Industry leaders within the sector have the scale and expertise to thrive in this dynamic market, providing reliable, long-term growth.
An ageing global population bodes well for Healthcare REITs
The increase in the proportion of older persons in the population, known as population ageing, is one of the most significant social changes of the 21st century and is a trend that is being seen across most countries throughout the globe. Advances in social and economic development as well as in health have lowered mortality rates, particularly among older people, meaning most people can now expect to live into their sixties and beyond.
At the same time, compounding factors such as urbanisation, higher education and access to family planning have led to smaller family sizes and fewer births, resulting in fewer children in many countries. Consequently, individuals aged 60 and above are growing in number and outnumbering younger people, leading to population ageing.
According to the World Health Organisation, life expectancy at birth reached 73.3 years in 2024, an increase of 8.4 years since 1995. The number of people aged 60 and older worldwide is projected to increase from 1.1 billion in 2023 to 1.4 billion by 2030. This trend is particularly evident and rapid in developing regions.
This demographic shift has significant implications for public health and will create a substantial increase in healthcare needs, which bodes well for REITs in this space. The United Nations Decade of Healthy Ageing (2021 - 2030), a global collaboration that brings together diverse sectors and stakeholders to improve the lives of older people, their families and the communities in which they live, noted that integrated care (delivering person-centred integrated care and primary health services responsive to older people) and long-term care (providing access to long-term care for older people who need it) are key areas that require focus over the medium term. These are two important growth sectors for Healthcare REITs.
Growing demand and limited facilities provide attractive opportunities for Healthcare REITs
In South Africa (SA)
One of the key names that has been making inroads in this sector is Growthpoint Healthcare Property Holdings (GHPH) - part of the larger Growthpoint (GRP) portfolio. The fund was launched in 2018 as SA's first unlisted REIT focused exclusively on healthcare real estate. GHPH's mandate is to acquire and develop acute, day and specialist hospitals, laboratories and biotechnology manufacturing and warehousing facilities. The Healthcare REIT has nine assets which includes seven hospitals, a medical chamber and a pharmaceutical warehousing and distribution facility. These assets enjoy long leases and are considered long-standing landmarks in their communities. Three of the hospitals have consistently been on Discovery Health's annual list of leading South African hospitals, as rated by their patients.
In terms of the general sector overview, local healthcare properties share the same resilience and tend to maintain their performance in downturns and rebound quickly in upturns. Even though Covid-19 weighed on all economic sectors, the underlying resilience of the healthcare sector proved to be true. Hospitals were unprepared for the first wave, during which elective procedures (which can make up anywhere from 40% to 80% of revenue) were prohibited for a few months. But they quickly adjusted. Private hospitals. in particular, made a quick recovery and continued to improve operationally in subsequent waves.
The pandemic revealed and created many gaps and opportunities in South Africa's healthcare system, as it highlighted a need for more public and private sector hospital beds and healthcare facilities in several provinces, which includes acute and day hospitals, laboratory facilities and biotechnology manufacturing, warehousing and logistics properties. GHPH is ideally positioned to play a key role in addressing these needs.
Day hospitals are a particularly interesting avenue of growth. They offer patients and medical schemes a cost-effective, short-procedure surgical solution without detriment to quality and safety. Typical surgery undertaken at these facilities include knee, shoulder, elbow, hand, eye, skin, spine, cosmetic, gynaecological, urological, ear nose and throat, as well as dental and general surgery, and a wide range of diagnostic procedures that need to be performed in a sterile environment on a same-day-in-and-out basis. The day-hospital footprint in South Africa is relatively small compared to the rest of the world.
A similar situation is evident across major global markets including the US and United Kingdom (UK), with growing demand for healthcare services alongside the capacity constraints of existing facilities representing a significant obstacle to successfully implementing government's policies aimed at expanding service delivery. The need for additional space has been compounded by a population that is growing, ageing and suffering from increased chronic illnesses, which is placing a greater burden on healthcare systems globally.
In the UK
The backlog seen across the National Health Service (NHS - the UK's publicly funded healthcare system) is substantial and remains a significant concern, with the number of patients waiting for treatment at record highs. It is estimated that one-third of the UK's current primary care estate is in need of modernisation or replacement. There is ongoing national recognition that improved health outcomes can be delivered by investment in community healthcare and through utilising capacity within the private sector.
REITs such as the UK-listed Primary Healthcare Properties and Assura (both of which have a secondary listing on the JSE), continue to actively engage with government bodies and⁄or private stakeholders to establish, support and help alleviate increased pressures currently being seen on the healthcare networks.
In the US
The US could experience a critical hospital bed shortage by 2032, according to recent research from the University of California, Los Angeles (UCLA), with US hospital occupancies on trend to reach 85% in the next seven years, mainly as a result of a reduction in staffed beds. While this could lead to a serious national bed shortage, it highlights the need for ongoing expansion and additional healthcare facilities. Day hospitals⁄clinics are also a key part of addressing this issue - these facilities offer a wide array of services such as imaging⁄laboratory studies and a wide array of procedures (typically only available in hospitals), which is helping to divert patients away from traditional hospital facilities. Senior living facilities is another key market for REITs in the US, with most well-established counters highlighting that the fundamental backdrop in this niche remains healthy as the population rapidly ages while new supply continues to dwindle.
Some of the largest Healthcare REITs in the US include:
Advantages of investing in Healthcare REITs
Risks of investing in Healthcare REITs
Valuation considerations
Healthcare is a defensive sector, and assets tend to maintain their earnings and revenues during market downturns, allowing them to perform better than the broader market during a market correction or a bear market (recession). Demand for healthcare facilities tends to be relatively stable, driven by the aging population, growing healthcare needs and the introduction of new technologies and therapies. In addition, these properties usually secure long-term leases and boast secure long-term cash flows.
This provides an interesting opportunity for investors who seek to gain exposure to unique or dedicated sub-sectors within the property space and allows for the potential to generate significant gains or diversification benefits. In addition, Healthcare REITs also provide market participants with an interesting addition to their portfolio, particularly for income-focused investors given that these counters boast steady and predictable cash flows. The sector, unfortunately, looks quite expensive currently - offering forward dividend yields at the bottom of its five-year range. This means that investors may have to be more specific when deciding on where and what to invest in.
Still, the demand and supply gap in the global healthcare system is growing rapidly and we would anticipate above-average growth from this segment of the market in the next few years, which explains the elevated valuation levels currently.
