PERSPECTIVE3-5 min to read

Healthcare-related real estate: attractions and challenges

There has been growing interest among APAC investors in alternative assets, including healthcare-related real estate such as life sciences property and retirement homes, reflecting strong long-run growth prospects in the life sciences industry and demographic trends. We investigate whether healthcare-related real estate sectors will offer significant opportunities for Core and Value-Add investors, or whether they will remain niche markets.



Andrew Haskins
Head of Strategy and Investor Advisory, Real Estate, Asia Pacific, Schroders Capital

Alternative assets growing in popularity, especially healthcare-related sectors

Whilst investment in alternative real estate assets in APAC fell 16% in 2022, this should not be seen as a sign that they are out of favour. In fact, most alternative real estate asset types are growing in popularity. The largest alternative sector in 2022 was R&D assets (largely in life sciences), in which investment rose 61% to USD4.3 billion. The second largest alternative sector was senior housing, in which investment rose 43% to USD2.6 billion. Both sectors surpassed data centres – previously the largest alternative sector – which saw a 64% drop in investment deals.

Figure 1: APAC real estate – investment volumes in alternative asset types (2022)

Asset type

Investment (USD bn)

YOY change (%)

Change vs 5Y avg (%)

R&D (largely life sciences)




Senior housing




Multifamily (ex Japan)




Data centres




Australian pubs




Medical office




Student housing
















Source: MSCI RCA (9 February 2023)

We expect aggregate APAC real estate investment to fall further in 2023, given higher interest rates in many markets and ongoing economic and political concerns. Within the total, however, the shift in interest to alternative asset types ought to continue, given the pressures affecting the office market in particular (still the largest property sector overall). Despite undoubted firm demand, investment in data centres may remain constrained by concerns about sustainability linked to high power consumption. Healthcare-related assets will probably remain more popular in the near term.

Life sciences property: modest in size and concentrated in specific clusters

The modern life sciences industry grew out of advances in biotechnology, which develops medicines and treatments through biological processes rather than chemical processes as in traditional pharmaceuticals. The industry is closely associated with leading universities, hospitals and research institutes, which provide start-up companies with access to talent and technical collaboration. Long-run trends such as aging populations have driven growth in life sciences, while Covid-19 provided an additional spur to growth in subsectors like vaccines and diagnostics.

At a global level, the life sciences sector is highly dependent on venture capital funding, although public funding to universities and hospitals and R&D investment by big pharmaceuticals groups also play a significant role. Venture capital funding has been directed chiefly towards companies located in top university cities in the US, China and the UK, as shown below using data for 2021. We estimate that aggregate global funding for biotechnology fell over 40% in 2022, from about USD130 billion to USD70-75 billion, due largely to rising global interest rates.

Figure 2: Top 15 global cities by life sciences venture capital raising (USD billion, 2021)

Top 15 global cities by life sciences venture capital raising

Sources: PitchBook, Savills (May 2022)

As an asset type, life sciences real estate takes various forms. The most important is combined laboratory and office buildings for research purposes, usually located in business parks. In the US, the typical life sciences building has a floorplate of 2,500-5,500 sq metres, with ceiling heights of over four metres and very high-grade air conditioning. Such buildings can command a rental premium of 20%-25% over standard business park offices. Light manufacturing facilities for vaccines and medicines are sometimes considered to be life sciences assets, but may also be regarded as industrial property. Life sciences and pharmaceuticals groups also make use of cold storage facilities for transportation of their products, but such facilities are probably better classified as logistics assets.

In most countries, life sciences research buildings are concentrated in well-defined clusters. For example, Cambridge Biomedical Campus in the UK, Europe’s largest life sciences cluster, is situated about 5 km south of the city centre (the heart of the university) and very close to Addenbrooke’s Hospital. In APAC, the largest life sciences cluster is probably “Pharma Valley” in Shanghai’s Zhangjiang Hi-Tech Park. There are similar clusters in Beijing, Singapore, Seoul, Sydney and other cities, all located in business parks.

Figure 3: Asia Pacific cities – leading life sciences clusters

Business parks

Zhangjiang Hi-Tech Park, Shanghai

Zhonguancun Life Science Park, Beijing

Biopolis, Singapore

Pangyo 1st Techno Valley, Seoul

Melbourne Biomedical Precinct (Parkville)

Macquarie Park, Sydney

Est. leasable life sciences stock (sq m)







Major pharma and biotech tenants

GSK, J&J, Novartis, Pfizer, Roche, AstraZeneca, Amgen

Beigene, Bestnovo, Innocare Pharma, Berry Genomics

ES Cell Intl, John Hopkins, Vanda Pharma

SK BioFarm, LabGenomics, CHA Biotech

CSL Behring, Starpharma, Royal Melbourne Hospital

Novartis, J&J, Merck, AstraZeneca


Mainly govt.-owned; land can be bought by public bidding. Land tenure is 40-50 years

Mixed, including owner-occupiers and private investors

Private ownership permitted with restrictions

Private ownership permitted with restrictions

Private ownership permitted. Some assets owned by end-users as partners with govt. bodies

Mainly privately owned

* Estimated land area occupied by life sciences sector. The total park area is about 3.3 million sq metres.

** Not all life sciences space.

Source: CBRE, 2023 Asia Pacific Life Sciences Real Estate Trends (March 2023), with adjustments by Schroders Capital

In these clusters, real estate fund managers may find opportunities to convert standard business park offices to combined office/laboratory buildings, and such repositioning should create a material uplift in rents (although the current funding pressures on start-up life sciences companies seem to be squeezing this premium). Since China is the APAC market with the most dynamic life sciences sector and Shanghai is the city with the highest investable stock, Shanghai is the most obvious market to focus on. In China, Value-Add investors may be able to divest stabilised assets to C-REITs or perhaps insurance companies. Elsewhere in APAC, Core or Core Plus funds would be likely buyers.

However, conversion strategies face various practical challenges. One is regulation. In Singapore, the government values the life sciences industry highly. However, business park assets are classified as industrial property, and subject to land leases managed by JTC which create restrictions on how investors hold the assets. Another challenge is the high importance of proximity to the core clusters. In Shanghai, there is very low vacancy in Pharma Valley in Zhangjiang. While the city government has designated five additional areas for life sciences expansion, the furthest are over 50 km away, and market players on the ground tell us that many occupiers would be unwilling to move for fear of losing staff. Owners of life sciences assets in the new districts may therefore face difficulties in attracting tenants.

In certain cities, there is virtually no life sciences stock at all: Tokyo is missing from the table of clusters. This is not because Japan lacks a life sciences sector. On the contrary, the pharmaceuticals industry is very well-established, and the big Japanese pharmaceuticals groups have been moving into biotechnology like their western counterparts. Rather, the reason appears to be that, in Japan, large universities and hospitals play a greater role in sponsoring research, so there has been less demand so far for leased laboratory space from start-ups. The developer Mitsui Fudosan is building laboratory and office space for rent in Tokyo’s Nihonbashi area and Osaka’s Doshomachi area, but this business is still very small. Certain investors in Japan have apparently tried to execute life sciences schemes on standalone buildings, but the chance of success of this approach seems limited given the importance of clusters in the sector.

Major plans exist across APAC for development of new life sciences parks or expansion of existing parks, so investable stock should increase over time. The leading projects in developed markets relate to Lingang Science Park in Shanghai, Daxing Bio-Medicine Park in Beijing, the Magok R&D District in Seoul and the Lok Ma Chau Loop in Hong Kong. Success is not guaranteed for these projects, and we are cautious about the growth plans for life sciences in Hong Kong SAR1– a sector which the territory is trying to enter rather belatedly. We expect China to remain the focus of activity in the APAC life sciences sector, and it may take time for an active investment market to emerge in Japan in particular.

Other healthcare-related asset types: smaller or even more specialised

Medical offices remain a very small asset type, with total transactions across APAC in 2022 of USD0.8 billion. They exist in various gateway cities, including Hong Kong, Tokyo and Singapore. In Hong Kong, private medical groups tend to select office space in either Central or other key commercial districts such as Tsim Sha Tsui. Coupled with the aging population, an increased focus on primary care and prevention in the wake of Covid-19 should drive further growth in local demand for private medical services, while visits by health tourists from Mainland China ought to resume now that the border has reopened. Bespoke medical office specifications differ somewhat from those for Grade A offices, and may include extra plumbing, separated ventilation systems, special waste disposal facilities, and lifts reserved for patients. Conversion of existing buildings to medical use is complicated, but feasible for experienced fund managers. Dedicated medical office buildings offer surgeries and clinics exclusive facilities which do not need to be shared with standard offices in the same building, but building them entails development risk.

As an aside, Hong Kong’s insurance sector may benefit indirectly from rising demand for healthcare services. Mainland Chinese customers supported growth in the sector for much of the last decade, attracted by policies offering currency diversification and better access to healthcare. Online purchase of insurance by Mainland customers in Hong Kong is not allowed, and so demand collapsed over 2020-2022 while the border was closed. Demand is now recovering, and it is realistic for Hong Kong insurers to target growth in the Greater Bay Area. Insurance groups are key office occupiers in decentralised areas of Hong Kong such as Kowloon East and North Point. Against a background of ongoing high supply of office space, demand from the insurance sector may provide some support for office rents in these areas.

Retirement homes represent another category of healthcare-related assets which is starting to become meaningful, with investment volumes across APAC reaching USD2.6 billion last year. Traditional residential care homes do not appeal to healthier, wealthier retirees, and in APAC there appears to be a general market need for high-quality living solutions which offer elderly residents both health care when required and amenities that encourage healthy lifestyles. Precise solutions will vary by market, but in most cases this is a specialised sector that requires partnering with experts in the field of elderly and medical care. Two markets which may offer growth potential are Hong Kong and Japan.

In Hong Kong, government-subsidised elderly homes usually form part of the retail component of residential estates or commercial developments, Although about one-third of the population of 7.3 million will be over 65 by 2038, incentives to supply high-quality senior living solutions have been lacking, and sites allowing elderly housing development are subject to restrictions. There are only six publicly or privately owned high-end retirement homes in Hong Kong (including one still under development in Happy Valley); these homes have only 1,500-2,000 places in total.2 Looking ahead, despite the operating challenges of running elderly homes, the acute shortage of senior living options in Hong Kong may create investment opportunities. These could include conversion of hotels or other assets to retirement homes for Value-Add fund managers and operation of completed assets for Core investors or other landlords.

An institutional market for ownership of retirement and nursing homes already exists in Japan. The large listed Japanese REITs sector includes a few REITs specialising in healthcare, for example, Healthcare & Medical Investment Corp. This company’s portfolio includes 47 properties with a total appraisal value of JPY86.6 billion (USD654 million), with a focus on paid nursing homes.3 Another big healthcare REIT active in Japan is Parkway Life. This REIT is listed in Singapore, but its portfolio includes 57 Japanese nursing homes, with sizes of between about 20 and 150 units and a total book value of SGD759 million (USD571 million). These homes are spread across 17 prefectures, but are mostly located in dense residential districts in major Japanese cities. Parkway REIT’s tenant base includes 30 nursing home operators, and it claims to have 100% committed occupancy.4

Total transaction volume in retirement homes in Japan remains modest, amounting to JPY70.7 billion (USD540 million) in 2022. However, with strong underlying demand given the rapidly aging population, there may be opportunities for fund managers to carry out building conversions or development, with onward sale to REITs or Core-style investors offering an exit path. It is worth noting that yields for Japanese senior housing assets are similar to yields for Japanese hotels, i.e., higher than for most other real estate sectors.

Figure 4: Cap rates (%) by market segment, Japan (all cities) – movement over time

Cap rates (%) by market segment, Japan (all cities) – movement over time

Source: MSCI RCA (March 2023)


Most alternative assets are increasing in popularity in APAC, including healthcare-related real estate, reflecting strong long-run growth prospects in the life sciences industry and demographic trends. However, most healthcare-related real estate sectors are likely to remain niche markets, in which partnership with experienced operators is important and execution risks are substantial. The life sciences real estate sector is likely to remain concentrated in well-defined clusters in specific cities, notably in China. Medical offices may offer opportunities in various cities. Retirement homes and nursing homes are still very undersupplied, but the most specialised sector of all in terms of operating requirements. REITs are already active in this sector in Japan, but it will take time for an active institutional market to develop across developed APAC.

1 SAR = Special Administrative Region [of the People’s Republic of China]

2 Source: Colliers, Senior living: Hong Kong’s new investment horizon (September 2021), as updated

3 Source: company website (

4 Source: Parkway Life REIT investor presentation (13 February, 2023), company website

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Andrew Haskins
Head of Strategy and Investor Advisory, Real Estate, Asia Pacific, Schroders Capital


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