The ‘housing-with-care’ sector and the investment opportunity within

Nick Edwards is chief operating officer at Audley

2020 has been a tumultuous year with the coronavirus pandemic leaving its mark across the globe economically, politically and socially. The UK residential property market, like most sectors, experienced a knee-jerk reaction in March, contracting at the start of the first lockdown. But figures from Nationwide last month painted a more promising picture with UK house prices growing at an annual rate of 6.5%, the fastest rate since January 2015, as the stamp duty holiday contributed to a short-term boost with many bringing purchases forward.

And for the housing with care sector, the outlook is more positive too. In its Senior Living Annual Review 2020, global property consultancy, Knight Frank flagged that institutional investment in this sector will exceed £1.5bn in 2020, citing a record year. Interestingly market penetration rates of below 1% in the UK still lag the rates of 5-6% seen in Australia, New Zealand and the US. But, nonetheless, the institutional investment opportunity within the senior living market in the UK is becoming more widely recognised.

For those of us involved with the sector, the investment case has always presented itself as an extremely compelling one. Strong growth drivers such as the UK’s aging population, coupled with increasing senior wealth, continue to fuel demand for appropriate retirement living solutions. And, this year especially, we have seen a surge in demand for accommodation that allows older people to feel safe and supported in their own homes. The attractiveness of the retirement living model in terms of its ability to flex access to care and health and wellbeing support is central to its success.

But it is now a fact that investors, such as pension funds, are increasingly recognising the potential for growth in the sector and turning their attention to it. The search for income this year has been particularly pronounced. And as pension funds wrestle with the impact of COVID on yields right along the curve, the answers to their income challenges can be found in their real estate allocations.

With traditional commercial property options like retail and offices proving a challenge to underwrite, investors are considering alternative assets such as retirement villages.

As a developing sector, the huge positive social impact that a flourishing retirement living sector provides to our wider society has been under-valued or perhaps even misunderstood. Many of the issues faced in our social care system result from people living in unsuitable housing, particularly as they age, and this places intolerable pressure on the NHS and social care systems. Retirement villages solve this challenge, free up much needed family housing and provide the cherished balance of an independent lifestyle with an emphasis on health and wellbeing, and care support as it is needed.

Frank Knight’s Senior Living Annual Review 2020, indicates that the retirement living sector is anticipated to continue its current growth trajectory, maintaining a rate of 10% per annum over the next five years. This will take the total senior housing stock to more than 800,000 by 2024. I think growth will be materially faster than this, but, even at this level, there should be investment opportunities – provided the investor can find right the right partner to work with.

A further development within the retirement living sector is the growth in rental. The number of private senior living rental properties in the UK is forecast to increase significantly by 160% in next 5 years, from almost 5,000 currently to more than 13,000 by 2024. This growth will be driven by an increase in the number of Housing with Care operators allocating a proportion of their pipeline to the rental market. Even accounting for such rapid growth, senior housing rental stock will still only account for 3% of the total number of private senior housing units, which is currently dominated by ‘for sale’ stock. But this is a changing dynamic with the market driven by an increasing demand from tenants for flexibility – which includes being able to delay the sale of the family home – and quicker access to services and care. This shift in demand from an evolving demography represents a further growth story for the retirement living sector- one which I am sure will continue to pique interest from those outside of the sector.