The UK Senior Living opportunity
28 November 2019
As we approach 2020, an ‘alternative’ asset class, in the form of retirement/assisted living, has not only secured this year’s top sector ranking for investment in our European Emerging Trends in Real Estate survey, but was also named the second most attractive development prospect.
A change certainly, however, in the current market this may not be too surprising. With income underpinned by strong demographic demand, senior living, alongside the likes of student and multi-family assets, may offer an attractive cyclical buffer in a top of the market environment. As one global investor told us “We are diversifying into alternative sectors, you could call it the beds and sheds strategy…The overall population trend is what gives us our long-term view. Beds are a good long-term strategy.”
Considering that there are somewhere between three and five million over 55s looking to downsize1,2 with c. £1 trillion in assets3, it is no surprise that Real Asset investors are starting to bet a proportion of these will seek high quality retirement options.
But to date, and with relatively few exceptions, the delivery model in the UK for independent later-living has been limited to build-for-sale retirement communities. This has been fuelled by a strong culture of home ownership, and, in part, a lack of similar quality rental choices. This starkly contrasts the mature North American rental market, which offers prospective tenants the benefits of equity release, increased flexibility and often, additional assisted living/care options to enable residents to age-in-place.
Indeed throughout 2018 and 2019, there have been a number of announcements from incumbent for-sale retirement developers and private equity and pension funds seeking to establish senior living for-rent offerings in the UK.
Like many other Real Assets sectors, this reflects a move up the risk curve for investors as residential for-rent models represent a more operationally complex and capitally intensive model. When blended with senior living needs (social programming, dining, leisure and health care), as well as requirement for an understanding of the UK market, and suitable land holdings for development, partnership models may provide the key to unlocking this emerging market segment.
This is particularly important as significant stocks of UK buildable retirement land are currently held by for-sale retirement developers, who often don’t have the patient capital backing or the direct economic incentives to offer alternative tenure models independently.
Therefore the drive will need to come from investors with a vision, the capital and likely, the experience from more mature markets - who can manage the risk of the sector’s very limited domestic track record.
In light of this, it is not surprising that established players have started to propagate mixed tenure schemes where the longer lease-up periods of rental are balanced out by windfall unit sales. It remains to be seen whether this hybrid model becomes the industry’s modus operandi, or if it is a step towards a dedicated leasing product.
What is absolutely apparent is the demand/supply imbalance (c. 400,000 unit shortfall based on certain industry estimates) and the need for the UK to have more later-living stock to accommodate an older population growing in size and age.
It is clear we are at an inflection point in senior living that has the potential to take quickly just as other residential rental offerings have before it. The same conditions are present with international investors possessing appetite and operational experience, and incumbents that have boots on the ground and access.
But ultimately the first-movers will need to take the fundamental leap that if they build it, the senior renters will come.
- Legal & General and Centre for Economic and Business Research– Last Time Buyers Report (April 2018) https://www.legalandgeneralgroup.com/media/2437/30042018-lg-ltbs-draft-v9.pdf. P. 2
- International Longevity Centre UK & McCarthy & Stone – Generation Stuck: Exploring the Reality of Downsizing in Later Life (Jan 2016) https://www.mccarthyandstone.co.uk/life-and-living/explore/lifestyle/downsizing-report/, https://ilcuk.org.uk/wp-content/uploads/2018/10/Generation-Stuck.pdf
- Key Retirement (June 2018) https://www.keyadvice.co.uk/about/press-release/pensioners-earn-7-000-a-year-from-their-homes