Australia’s aged care sector is facing a growing supply crisis, as new development lags and existing facilities are increasingly repurposed for alternative uses.
According to data cited by CBRE, the country is now tracking 65 years behind the pace needed to meet projected residential aged care demand by 2047.
Meanwhile, average occupancy is already at 95% - and edging uncomfortably close to full capacity.
We spoke with Marcello Caspani-Muto, Associate Director at CBRE’s Healthcare & Social Infrastructure team, about the factors driving this shortfall and where investors should focus.
Operators Hold and Redevelop
Between 2019 and 2023, CBRE recorded consistent year-on-year growth in the sale of vacant aged care homes.
However, in the past year, volumes have dropped sharply as operators increasingly favour reinvestment over divestment.
“Operators have the capital to redevelop, renovate, or expand homes as they reach end of life and essentially restart their life clock,” Mr Caspani-Muto said.
“Where we once had larger operators divesting smaller homes that were sub-scale, they are now having such success that an entire redevelopment or expansion is far more feasible than new builds, so they are choosing to retain the real estate.”
This shift has sharply diminished the pipeline of available aged care assets.
New Players Drive Up Prices
The race for aged care real estate is no longer limited to sector specialists.
Investors from the NDIS, healthcare, childcare, and residential sectors are now competing for the same pool of assets.
Facilities once earmarked for refurbishment are now being snapped up and repurposed for supported disability housing, medical clinics, childcare centres, or mainstream residential use.
“This is driving competition which ultimately drives price,” Mr Caspani-Muto said. “As more continue to enter the competitive arena to purchase these assets and supply dries, pricing will only rise.”
Assets Trade on Tomorrow’s Earnings
It’s not just vacant sites drawing interest.
Larger operators and institutional investors are acquiring operational aged care homes at prices that reflect forecast earnings rather than current financials.
This is underpinned by several factors: stronger per-bed government funding, improved sector profitability, and the ability of experienced operators to lift performance.
“We see notable variations in profitability and success across aged care and childcare providers these days, which can be due to various factors such as financial control, marketing, and quality of staff,” he said.
“These are not just minor differences, they are notable.”
Why New Builds Don’t Stack Up
Even with improved sector profitability, building new aged care homes remains a tough financial proposition.
“A new home costs an average of $500,000 per bed in 2025,” Mr Caspani-Muto said. “If we adopt a sub-scale size home of 100 beds this is $50 million in building costs alone and that doesn’t even include land value.”
Given the economics, only a handful of large private and non-profit operators are pressing ahead with greenfield developments.
Most are choosing to expand or upgrade existing facilities as they offer a better cost-to-return ratio.
Tapping Into Long-Term Growth
Looking ahead, Mr Caspani-Muto said investors should prioritise assets with robust fundamentals and reliable income streams.
“If a modern and well-leased aged care investment arises, we would encourage strong consideration to be placed on these, aligned with healthcare cap rates,” he said.
“These feature large landholdings, land tax exemptions and long-term leases.”
With Australia’s over-85 population expected to grow significantly in the coming decades, this demographic momentum is hard to ignore.
“Our country’s ageing population over the next 40 years is highly supportive of long-term operational success, with notable government support across these sectors,” he said.
