Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 678

Why investors are looking beyond traditional property sectors

What is life sciences real estate?

Life sciences real estate is characterised by facilities largely used for scientific research, diagnostics, healthcare, and innovation — most commonly in biotechnology, pharmaceuticals, medical technology and pathology. These assets are classified within the ‘alternative’ real estate sector, sitting between Office, Retail and Industrial & Logistics sectors, and are distinct from traditional healthcare real estate (e.g. hospitals and aged care).

Life sciences assets are comparatively more complex and sophisticated, with higher upfront capital requirements from the tenant. They can accommodate laboratories (wet and dry), Research and Development (R&D) facilities, biomanufacturing plants, clean rooms, testing facilities, and specialised office-lab hybrid buildings. These uses often require advanced heating, ventilation, and air conditioning (HVAC) control systems, high power capacity with backup infrastructure, and specialised safety features. Assets may also require reinforced floors and be subject to strict regulatory compliance. Typically, they are located within established clusters in close proximity to research institutions, universities, hospitals and skilled labour forces.

While life sciences property encompasses biotechnology and pharmaceutical research, this article focuses primarily on pathology and diagnostic testing facilities, which represent one of Australia’s most established forms of life science infrastructure.


Sullivan Nicolaides Pathology, 24 Markwell Street, Bowen Hills Qld

Structural demand drivers

The sector benefits from several long-term structural trends that may support demand growth. Ageing populations and rising healthcare demand have driven significant increases in healthcare expenditure. In the wake of the pandemic, there has also been an increased focus on longevity trends and a marked expansion in the scale and complexity of medical testing.

Long-term trends supporting demand

  • Ageing population: Australia’s population aged 65+ will increase from 1 in 6 today to 1 in 4 Australians by the 2060s, with 85+ the fastest growing cohort.1 This rise in the elderly population is expected to drive structurally higher and recurring demand for pathology and diagnostic testing.
  • Leading government healthcare spending and performance: Australia has recorded the highest growth in healthcare spending per capita across the advanced economies, increasing 5.7% compound average growth rate (CAGR) since 2000, above the G12 average of 5%.2 Australia also has an outperforming and productive health system, ranked highly for health outcomes, equity and efficiency.3
  • Variety and complexity of testing: Growth in diagnostic testing reflects increasing variety and complexity (e.g. genomic monitoring and biomarkers, multi-panel testing), as well as the expansion of screening programs and early detection initiatives. Preventative healthcare is shifting upstream with an increasing focus on early intervention, which is expected to support testing volumes.

Life sciences real estate as an investment sector

Life sciences real estate is a diverse property sector, and the method of participation for an investor is a key determinant of outcomes. The sector’s specialisation and higher upfront capital requirements create distinct investment implications. Tenant lease terms are generally longer, increasing the importance of tenant financial stability, asset specialisation and location.

  • Tenant quality: High-quality tenants reinvest in mission-critical assets, underpinning sustainable rents and long-term cash flow growth. Key indicators of tenant strength include rent-to-EBITDA (earnings before interest, taxes, depreciation and amortisation) and net debt-to-EBITDA ratios. Over time, high-quality tenants with resilient business models tend to deliver EBITDA growth, which may strengthen income security and support rental growth.
  • Asset specialisation: The specification, regulation and capital requirements create barriers to entry across the asset class. As a result, well-located, high-quality facilities may be better positioned to command rental premiums and support occupancy over the long term.
  • Location: Over time, tenant network effects may strengthen as connections with customers and surrounding business clusters deepen, reinforcing locational dependence and supply chain networks. Immediate proximity to key hospitals, medical research institutions and tertiary health services strengthens operational linkages and increases the strategic importance of the location to tenants.

Conversely, underperforming tenants can materially impair outcomes. In the event of lease expiry, high fit-out costs and asset-specific requirements can result in elevated re-leasing costs. Where assets are in inferior locations or poor condition, these challenges can compound. Tenant concentration and dependence on government reimbursement settings may also represent risks.

Successful investment criteria

Successful investments are typically anchored by tenants with strong and diversified revenue sources. Their cash flows tend to be supported by both public and private funding sources.

Investment risk can be mitigated through careful asset and tenant selection. Greater conviction can be achieved by targeting essential business models with established track records, and by prioritising modern, stabilised assets that reduce development-related risks.

Why pathology facilities may benefit from structural demand

Demand for essential pathology services

  • Critical life sciences infrastructure: Australia’s private pathology sector provides essential healthcare infrastructure for illness detection and treatment.
  • Non-discretionary demand: Consumption of these services has been resilient through economic cycles, with a strong link to population growth, ageing population, rising life expectancy, and ongoing technological advancements.
  • High barriers to entry and limited supply: Significant capital requirements, stringent regulation, specialised facility requirements and scarce suitable real estate constrain new supply, contributing to a highly concentrated market in which the three largest operators account for more than three-quarters of industry revenue.

Healthcare expenditure and service usage

  • Ongoing government fiscal commitments: The FY27 Federal Government budget for healthcare increased commitments, with an approximate 17% increase in health expenditure forecast between FY26 and FY30.1
  • Rise in service usage: Pathology services provided under Medicare have trended upwards over the past decade. Over the 20 years to FY25, the average annual number of Medicare pathology items claimed per person increased 75%, from 2.6 items to 4.6 items per person.3 In FY25 alone, 175 million services were provided under Medicare.4
  • Medicare expenditure: Approximately $3-4 billion per year is spent on Medicare-funded pathology in Australia. This equates to roughly 10-12% of total Medicare expenditure, the joint highest service volumes per capita with GP visits.5
  • Growth of market: Australia’s pathology market is worth ~US$11.8 billion in 2025 and is forecast to grow to US$26.2 billion by 2034 (~9% CAGR).6

Public and private funding sources

  • Public support: Given the focus on maintaining sustainable healthcare expenditure, governments may increasingly rely on efficient, private providers to deliver healthcare services.
  • Medicare support: Pathology has resilient support from government funding through Medicare (~70-90% of volume), with pathology traditionally recording one of the highest bulk-billing rates of any medical service (~91% in FY24, compared with an average of ~76% across other services).1
  • Resilient government funding: The government continues to commit to expanding test coverage, adding new reimbursable tests, and supporting access and volumes. Examples include Medicare-funded reproductive carrier screening tests and higher demand for genetic testing. However, reimbursement levels are subject to policy decisions and periodic review.
  • Private sector filling the gaps: The private sector is also contributing to service funding, with a growing contribution from private insurance (via hospital diagnostics) and advanced diagnostics.

Together, these factors suggest that pathology facilities may benefit from supportive, long-term demand trends. However, as with any specialised sector, investment outcomes will depend on asset quality, tenant strength, valuation discipline and future supply conditions.

 

1. Australian Government – Australian Institute of Health & Welfare FY27 Government Budget.
2. Global Health Expenditure WHO, via World Bank 2026.
3. Commonwealth Fund – Healthcare system performance rankings.
4. IbisWorld.
5. Services Australia.
6. Imarc Group.

Steven Bennett is Chief Executive of Direct Property and Sasanka Liyanage is Head of Research at Charter Hall Group, a sponsor of Firstlinks. This article is for general information purposes only and does not consider the circumstances of any person, and investors should take professional investment advice before acting.

For more articles and papers from Charter Hall, please click here.

 

  •   2 September 2026
  • 1
  •      
  •   

RELATED ARTICLES

The first impact of negative gearing reform is not the tax bill

Origins of the mislabeled capital gains tax ‘discount’

Australian house price speculators: What were you thinking?

banner

Most viewed in recent weeks

It’s time for LICs to die

A high-profile dividend cut and a prominent fund manager’s apology have reignited a long-running debate. If investors can access similar exposures more cheaply and efficiently elsewhere, what exactly is keeping LICs alive?

The retirement scorecard: how many of these questions can you answer?

From the maths of retirement, estimating spending and picking the right asset allocation to survive a poor decade, here are the questions every retiree – current or future – should be able to answer for themselves.

Testamentary trusts: Treasury has picked the wrong reading

A decades-old estate planning tool has survived one tax crackdown only to be caught by another. The surprise isn't who the reform is targeting, but who could end up paying the price for drafting choices made years ago.

How the typical Australian Family could save $844,350 in taxes

The value of a testamentary trust is not determined by wealth alone. Depending on circumstances, it can reduce the tax burden on inherited income, create efficiencies and help build intergenerational wealth.

Division 296: the initial moves to make before the windows close

What if the best superannuation strategy isn't about earning more, but acting before your options disappear? Several overlooked planning windows are narrowing, with consequences that can last for decades.

The housing slide could become a crash

House prices are sliding across Australia, yet the most dangerous ingredient for a housing crash is still missing. If job losses surge amid growing economic risks, today's correction could become a historic property downturn.

Latest Updates

SMSF strategies

Division 296: the initial moves to make before the windows close

What if the best superannuation strategy isn't about earning more, but acting before your options disappear? Several overlooked planning windows are narrowing, with consequences that can last for decades.

Planning

Avoid unnecessary CGT with this estate planning clause

A simple estate plan can create a ticking time bomb. One overlooked clause can pit spouses against children, delay inheritances, and potentially leave a family facing an unexpected tax bill worth hundreds of thousands of dollars.

Exchange traded products

The hidden trade-off in fixed income ETFs

Some investment trade-offs are immediately visible. Others are embedded in the way a portfolio is constructed. Understanding the difference may explain why similar-looking investments can produce surprisingly different results.

Retirement

The mortgage free retirement is fading

What happens when a generation reaches retirement carrying obligations previous generations largely avoided? New research suggests we may need to rethink both how much we need in retirement and what life could look like.

Retirement

The key question to inspire a confident and purposeful retirement

Most people spend decades planning for retirement. Far fewer plan for what happens when they get there. The difference may explain why so many find the transition harder and less fulfilling than expected, despite careful preparation.

Latest from Morningstar

Making the case for a 'good enough' portfolio

Some investors spend years chasing the perfect strategy. Others choose a path that’s simply good enough and move on. Which approach is more likely to deliver both better outcomes and a happier financial life over the long run?

Investment strategies

Is the US market as expensive as CAPE says?

Many investing ideas survive for decades. But that does not make them right. A famous valuation measure implies that US shares are dangerously expensive, but the evidence may point to a very different conclusion.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.