Cap rates for purpose-built healthcare assets are stabilising after two years of compression. We break down the sub-sectors still offering upside and where rent reviews will matter most.
Key takeaways
- Cap rate compression has paused, not reversed — income quality now drives value.
- Purpose-built assets with strong operator covenants continue to trade at a premium.
- Rent review structures matter more than headline yield over a ten-year hold.
Where yields have settled
After two years of compression, capitalisation rates for purpose-built healthcare assets have broadly stabilised. Buyer depth remains strongest for assets underpinned by long leases to established operators, where income certainty offsets a tighter entry yield.
Secondary stock — converted houses, ageing suburban clinics, and single-practitioner sites — is repricing. Owners of those assets should expect valuation to hinge on alternate use or redevelopment potential rather than passing income.
Sub-sectors still offering upside
Day hospitals and specialist consulting hubs in growth corridors remain undersupplied, and rents there are still catching up to replacement cost. Allied health clusters attached to established medical centres are also performing well because they lift the trade-catchment of the whole asset.
Standalone GP tenancies without on-site pathology, imaging or pharmacy support are the most exposed if a lease comes up for renewal in a weaker catchment.
What landlords should do now
Review the timing of your next market rent review and start preparing evidence twelve months ahead, not three. Confirm outgoings recovery is complete and correctly apportioned, and check that make-good and maintenance obligations still sit with the tenant.
If you hold multiple assets, rank them by covenant strength and remaining lease term. That ranking, not gross yield, should drive your hold, refurbish or divest decisions.
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