Later living market continues to mature
The attendance at a recent Retirement Living conference held in London has more than doubled to 500 delegates over the past three years.
A useful barometer if one was required of growing interest in this sector. And with good reason. Opportunities abound for those seeking to throw their cap into the retirement living ring and offer solutions to solve the current conundrum of how to match demand with supply.
There are sound market dynamics which are fuelling the growth of the sector. It is well documented that the UK has an ageing demographic that will see 17.3% of the UK population celebrating 65+ years by 2037 with 3% of those being 85+ years of age.
This demographic, and the need to house and care for it with suitable accommodation, is not currently being met by a corresponding forecast in supply. This remains the case, notwithstanding the evidence emerging that the traditional barriers to demand for retirement living are dissipating. The wider range of tenures and options being offered have done much to overcome some of the previous rational and emotional barriers to entry and account for the increased take up.
The UK Government is supportive of initiatives to increase supply, no doubt mindful of the potential for cost saving to the public purse that can be achieved. A recent estimate put this at £3,500 per person per annum for the NHS and social care services.
These favourable dynamics led to record investment in private healthcare last year, with strong interest from institutional investors such as Legal & General and AXA seeing the opportunity to generate not only long term income from assisted living but the potential for added value derived from management of development and operational risk in the rapidly growing residential asset class.
It seems likely in this regard that retirement living projects will follow the lead of student accommodation and we will see a shift from conventional net lease arrangements to management agreements that can drive out the added value.
The appetite for risk and the significant setup costs will determine many deal structures. Some investors will prefer to mitigate planning risk; others will seek to avoid procurement risk and prefer turnkey arrangements. Some investors will see opportunity to add value through effective risk management. Often this will be achieved through bespoke joint ventures which can blend the risk and reward of the participants to suit.
Whatever the optimal deal structure the fact remains that the weight of capital chasing down opportunities in this sector is unprecedented, and that can only be good news for those at the mature end of the ageing demographic making plans for later living.
Those involved in residential development should however also take cognisance of this changing market dynamic, particularly when planning larger new settlements where there will be a greater need to cater for the retirement living sector. Inter-generational living can only enhance the sense of place that underpins and makes a new community desirable, and therefore the development of same more successful.
Recent changes to the planning system require the Scottish Ministers to consider the housing needs of older people. The next National Planning Framework, NPF4, will need to address the aim of providing housing for older people and disabled people. In addition, the Scottish Ministers must report to the Scottish Parliament every two years on how the planning system is operating to help ensure that the housing needs of older people and disabled people are met. The Ministers must consult a range of bodies, including planning authorities, developers and RSLs when preparing their reports. These new duties may well lead to a shift in planning policy to provide support for retirement housing in areas where mainstream housing would not be encouraged.
Indeed the appetite for investment in this sector should not be ignored by the housebuilding sector as there will be opportunities to participate in development that may not have been envisaged and may allow value to be added to the bottom line that was not previously forecast.
Ripe markets undoubtedly bear fruit and housebuilders should position themselves to share in any rich pickings which are to be harvested.
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