It Could be Time to Invest in Later-Living Now

Authored by: Erin Moffat, Director, Head of Real Asset Services, Jersey
Updated on: April 30, 2024

Erin Moffat explains why later living could be the next build-to-rent (BTR) phenomenon, exploring the market dynamics, ESG angles, and the challenges and opportunities that lie ahead.

As the global population ages, the demand for innovative later-living housing solutions is reaching unprecedented levels. While the later living sector is currently undercapitalized, offering immediate investment opportunities, this seems likely to be a temporary condition.

According to Knight Frank, a significant shift is on the horizon, with 67% of investors without capital currently deployed in the sector planning to enter the market by 2028. This means now is an opportune moment for investors looking to position themselves in a sector that may be on the cusp.

This burgeoning interest is not solely driven by the compelling demand-supply imbalance, but also by the sector's unique Environmental, Social, and Governance (ESG) proposition.

The 'S' in ESG is particularly salient. Effective later-living products cannot just be about constructing physical spaces; they need to establish communities to support those making significant lifestyle changes. This is a long-term process that not only fulfills a social imperative but also contributes positively to operational efficiency and EBITDA. Take New Zealand as a case in point, where operators of later living communities such as Oceania Healthcare and MetLife Care are publicly listed companies. This level of maturity in the sector is a strong indicator of its investment viability.

However, the road to capitalizing on this opportunity is fraught with challenges. The planning process is a significant bottleneck, often out of step with modern ESG considerations which is a hurdle for investors, who are increasingly ESG-conscious. Moreover, fire regulations, a topic currently under intense scrutiny, offer another layer of complexity but also an opportunity to innovate for safer and more sustainable communities.

The sector's challenges extend to public perception and local governance. There's a clear need to embed specialist later-living housing into local planning guidelines, with a view extending as far as promoting senior living as a solution for housing crises in the Western world. Central to this is the concept of "right- sizing," which encourages older generations to transition to suitable later living facilities earlier, thereby freeing up family homes for younger occupants. However, this journey to later living can be complicated for participants by confusing processes and terminology, highlighting the key roles of multiple stakeholders, including residents, their relatives, and facility operators.

Addressing the Bisnow conference in September 2023, Martin Earp, CEO of later living specialist Riverstone articulated a vision that captures the evolving dynamics of the sector. They emphasized that today's generations are not merely aging but 'actively aging,' thereby redefining the very concept of retirement from passive to active. While the sector is increasingly incorporating hospitality-inspired elements, Riverstone stressed that the quality of space alone is not enough. The focus must shift towards community building, which is paramount for the well-being of residents.

To broaden this sense of community, Riverstone is also reaching out to the relatives of potential residents.  They are offering a 'try before you buy' rental model as a way to alleviate the common apprehensions around making the transition to later living facilities. This approach acknowledges that emotional attachment to family homes remains a significant barrier to entry. It also underscores the need for a comprehensive educational effort to inform potential residents about the manifold benefits of later living communities, beyond just the appearance of the physical environment.

Services in the sector must be customized to meet the unique needs of residents, factoring in location-specific variables. The focus of care should shift towards personal assistance aimed at extending independence, rather than highlighting a loss of it. Advances in technology and medical care are altering residents' needs, adding complexity but also indispensability to the sector's amenity offerings.

The sector's broad reach, potentially spanning up to 40 years of a resident's life, presents both challenges and opportunities. While this breadth calls for more market players and more diverse models, it also creates a unique dilemma: the rising average age of residents may also operate to deter younger entrants, a situation exacerbated by the current supply-demand imbalance.

For the sector to realize its full potential, stakeholders must navigate a series of challenges, from planning and regulation to public perception and education.

Published on: April 30, 2024

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