Investing: Retirement Living Sector in the UK & US
Accommodations for the the over 65 population has become one of the fastest growing property sectors for both the UK and US for potential investors. For the UK citizens over 65 population is expected to triple over the next 25 years and for those 85 and older is expected to double to 3.2 million according to a report by Jones, Lang and LaSalle (JLL). For the US the number of Americans ages 65 and older is expected to double from 46 million now to over 98 million by 2060, and the 65-and-older age group's share of the total population will rise to nearly 24 percent from 15 percent according to a report by the US Population Reference Bureau.
Newcastle University has found that the amount of daily care people need has risen over the past two decades: ‘...from 1.1 years to 2.4 years for men and from 1.6 years to 3 years for women.’
Shortages for care homes available for the elderly and those requiring full-time high intensity end of life care is expected by JLL to be short 3,000 beds by 2018. Also in demand will be specialist homes over the next 20 years that will have to increase by 400,000 to meet the demand.
Philip Schmid, Director – Healthcare Investment, Alternatives at JLL, says: “The single biggest challenge facing older people in the UK is a complete lack of appropriate housing choices to suit their lifestyle, care or support needs as they age.”
As growth in the retirement living sector in the UK has increased so have new business models offering more choices in living facilities and healthcare services. Less that 1% of the over 65 population in the UK are living in these particular communal facilities. In Australia and New Zealand 5% of the over 65s are living in housing and healthcare communities.
Anthony Oldfield, Director, Alternatives at JLL, says:
“Retirement living properties are an attractive option because residents still have their own home and retain their independence but also get access to support or care and amenities that help retain independence and provide a sense of community.”
Could this investing in new home and health facilities help with Britain’s housing shortage by freeing up larger homes for families to purchase or rent?
James Kingdom, Associate Director – Research at JLL states:
“If the UK retirement living market were to match more established markets, like the US or Australia, it would generate up to 2.6 million sales in the housing market – three for every downsized property.”
“Just over half of owner-occupied homes are under-occupied compared with 14 percent for the private rented sector.”
Today’s retirement is mostly in repurposed in 1970’s era homes once used for social housing or were managed by local councils. As a result these accommodations offer few amenities and low amounts of social interaction. There are upscale accommodations such as Audley Retirement which is described as being more like a 5-star hotel.
The opportunity for investors in the retirement sector is in the mid-market range.
Kingdom says :
“We’ve seen in Australia and the US that there are lots of service offerings catering to people of different needs with varying degrees of wealth. And this is not just of benefit to the elderly population – it has a direct knock-on effect to the wider population by unlocking the residential market.”
Anthony Oldfield at JLL:
“Retirement housing is a housing move, and a proactive choice as opposed to care which may be a reactive decision,” Oldfield explains. “People are able to use their existing housing equity to downsize, free up capital and take control of the accommodation and potential care needs as they age”.
It also helps that investment case for retirement living properties is much clearer to both the end consumer and investor, says Schmid. Recent research by JLL estimates that these could double in value in just over a decade.
The interest in the care home market has increased as a result of large investors. Philip Schmid says:
“We’ve seen an array of different models being considered – from homes providing simple support all the way through to developments offering an extensive range of additional hospitality services and care” he says.
“The developments that have been most successful are those that are residential-led, with care almost as a side offer. Retirement living is evolving to become an aspirational product and it is enticing people in.”
The United States Market
For America’s ageing population what state is expected to be the best for ageing?
In a new US News ranking Colorado has the healthiest over 65 and older population compared to all other states and provides the best quality in for Medicare and assisted living facilities.
According to the US Census Bureau the population for over 65s in Colorado is growing faster than other states. The number of 65s in 2010 was 10.9 % of the total state population and by 2016 the number had increased to 13.4%. The national average is currently near 15.2%
The Colorado State Demography Once is forecasting that by 2030 the over 65 population will increase by 77% from 2015 to 1.27 million. Many are reported to be residents who are ‘aging in place’ or who have lived in Colorado for 20 years or more with no plans on moving to another state.
Gov. John Hickenlooper see’s his states number 1 ranking as being due to ‘a strong collaboration among the government, the private sector and local municipalities.’
The Governor established this September a new senior advisor to follow issues of over 65s and their needs with funding provided by the non profit Next Fifty Initiative to improve community services for the elderly with assistance from the private sector on the states nursing homes and caregiver standards.
Senior Housing REITs
One of Americas leading healthcare real estate investment trust for senior housing just reported earnings for the Q3 which shows that this particular sector has plenty of room for investment. Welltower reported earnings of $1.09 billion for the quarter beating analysts expectations of $1.04 billion with funds from operations (FFO), how REITS measure earnings, was at $1.08.
With these results Welltower will continue to be the largest healthcare REIT in the market according to a report by investor news Motley Fool (TMF).
As baby boomers retire the number of senior citizen for this market sector is expected to grow for at least the next 20 years. Age groups such as those 85 and over is expected to double in size a demographic that represents 70% of the Welltower portfolio.
The demand for assisted living, memory care and independent living in the US is forecasted to be 96,000 units per year by 2030.
TMF also reports:
‘Other trends favor Welltower's strategy of focusing on high-barrier urban markets. The majority of seniors in America's largest cities say that they want to stay, and 81% are open to living in an urban senior living community.’
Florida: New Construction
The sunshine state of Florida has always been popular with ageing senior citizens and a new $40 million independent, assisted-living and memory-care development, Grand Living at Tamaya, is beginning to start construction. The 171 unit by Ryan Companies will is expecting completion by 2019. The development will be on 6.08 acres that was recently purchased for $3.3 million. The four-storey 200,000 sq foot property will have four lifts with floorpans of a studio, one- and two-bedrooms, with dens available for the one- and two-bedroom apartments.
In a report in the Jacksonville Daily Record, Eric Anderson, Ryan Companies vice president of development for senior living, the company states the company ‘:... hasn’t begun marketing to residents, but has been talking with equity groups about investment and received “significant interest.”
The Grand Living property will be near the roads along Beach and Kernan boulevards and adjacent to the Jacksonville Golf & Country Club. Anderson states in the report about the location:
‘Commuters may drive by many times and not think about it.’
“You will remember where it is when you do need it,” he said.
“We have had great success around gated communities.”
Should residents need more assistance in the future :“We bring the care to where you are.”
Those residents requiring assistance for memory care would be moved to a 34-unit secured location on the property. A registered nurse and licensed practical nurses will be available 24/7.
The property amenities will include five dining venues, a Grand Spa with a personal trainer, outdoor pool, library, club room and pet grooming among others.
Anderson states: “Boomers want choice,”
“We are going to partner with colleges and schools and we want to be a recital center.”
“Seniors love that. They will be the biggest cheerleaders for the kids.”
As for pricing:
“Our philosophy is we will be in line with the market, but we plan to have higher value,” he said.
“You are going to feel like you are a very high-end resort. The sizes will range from 450 to 1,200 square feet. Some units will have decks and fireplaces, and the 137 independent and assisted-living units will have kitchens with appliance packages and granite countertops.’
Grand Living plans on having 80-90 employees for ‘care, food service, maintenance, activities and other functions by the time the community is full.’
(Disclosure: The author of this article has no positions in the companies mentioned in this report.)