Covid-19 shone an uncomfortable light on the state of the UK’s retirement living provision and with the population of over 75s set to increase by 56% over the next 20 years, a once nascent sector looks set to explode in the coming years1.
The investment tailwinds are well known, and as JLL’s Simon Scott explained, they are only heading in one direction:
“Life expectancy is growing, baby boomers are moving into later year provision, while there is serious undersupply. These are all pretty fundamental drivers for a compelling investment in my view.”
Indeed, the baby boomer generation represents a key turning point for the sector, not only due to the number of people in it but also the size of its wealth.
Baby boomers are living longer and are wealthier than previous generations. For the first time, this demographic is wealthier than the generation that follows them, meaning they need to pass that wealth onto their less affluent offspring. By 2040, it is predicted that the combined housing wealth and later retirement living power of the over 75s will have increased by 182%, which presents a significant opportunity for investors2.
Our research supports this view, with 60% of respondents seeing the retirement living sector as particularly appealing from an investment perspective over the next five years, up from 35% in the first Future Living report, and 69% over the next 10. For investors surveyed, retirement living is now the most appealing of the ‘beds for rent’ sectors, significantly ahead of the well-established build-to-rent (BTR) and student accommodation sectors.
This trend looks set to continue, with 83% of respondents agreeing or strongly agreeing that retirement-for- rent will be an established asset class in the UK in five years’ time.
It is a severe lack of supply that presents the greatest opportunity for developers and investors. The development of state-built retirement properties first seen in the 80s and 90s has dropped off. This has left insufficient stock to meet the current demand of occupiers. Developments that do exist often have poor amenities and are of a quality that does not meet the demands of a generation which has generally become accustomed to living somewhere desirable.
M&G’s Alex Greaves agreed that work still needs to be done to persuade people to sell their homes and move into retirement communities. “This is the generation that has probably created the highest level of wealth through homeownership. So, getting them to change their psyche, both in terms of what retirement living can offer and to sell their homes, is a big ask.”
Time will be an influential factor here. As more people become accustomed to a highly amenitised offering at all stages of the ‘beds for rent’ lifecycle, so the appeal of amenities such as cinemas, gyms, as well as the ease of onsite care will become more appealing.
Location and amenities will play a pivotal role in attracting retirees into senior accommodation, as well as the appeal of living within a thriving community; just one example is the offering from the Goldman Sachs backed retirement living developer Riverstone, which features swimming pools, a concierge service and fitness studios across its communities. The pandemic has amplified this.
This is the generation that has probably created the highest level of wealth through homeownership. So, getting them to change their psyche, both in terms of what retirement living can offer and to sell their homes, is a big ask.
The appeal of co-living spaces is growing
The same factors are at play in co-living, which Simon Scott described as “that connection between students and multi-family in its purest sense,” and is seen as a way for millennials to experience the same community living benefits while still having their own private space. Furthermore, the focus on social events and communal spaces sets co-living apart from traditional BTR.
This is reflected in our findings, with 44% of investors particularly optimistic about the co-living sector over the next five years, compared with 30% in 2019.
Paul Bashir said that “there will be a huge demand for a product between student accommodation and BTR, for 22-25-year olds rather than 28-30-year olds.”
Indeed, with co-living suited to cities like London, where buying a property is out of reach for many and renting has risen from 22% to 30% since 2008, the convenience, flexibility and quality of co-living is being increasingly seen as an attractive alternative to shared houses, which are often poorly managed by private landlords3.
Simon Scott thought that with the way we work evolving, there may be a market for older people to have a co-living base in a large city alongside their main home further out. “Thinking about the future and perhaps spending less time in the office, the question is ‘am I better off moving further out as my full-term residence?’ and taking a co-living self-contained unit, which is cheaper than something found in the multi-family market, as an urban base.
Suddenly you've gone from having an early 20s to 30s cohort to now pitching to an early twenties up into mid-fifties/sixties, pre-retirement cohort. That expanded market is where the demand might come from, which I think actually makes co-living investment even more compelling.
It’s clear from our findings that investor attitudes to retirement and co-living have evolved since our previous report. Some of that can be attributed to the continuation of long-term trends: the UK’s ageing population and the continued rise of ‘Generation Rent’. However, the impact of Covid-19 should not be underestimated. The pandemic has made people appreciate the importance of social interaction, and when co-living and retirement developments are executed well, they put community at the heart.
1 Cushman & Wakefield, Senior Living – The imminent demand & emerging opportunity, 2020, p.3
2 Cushman & Wakefield, Senior Living – The imminent demand & emerging opportunity, 2020, p.9
3 CBRE, Europe Co-living Report, p.14 (Link)
Head of Real Estate
Mark is Head of Real Estate lending responsible for over £1bn of loan assets, and specialises in providing development finance for industrial, residential and student accommodation projects across the capital stack.