Senior housing: sale/rent divide between the UK and Europe

Different operational models prevail in the UK and Continental Europe but all will experience growth, delegates heard at Real Asset Media’s UK Senior Living Report Launch, which took place online this week.

Michael Voges, Executive Director, ARCO

In Germany and France the rental model prevails when it comes to senior living, while in the UK most units are for sale and the rest is a lease or shared ownership model.

“Investors look at things very differently, and a lease facility clearly doesn’t have the same risk/return profile as when you invest at development level in an operational platform”, said Frédéric Dib, President, Mozaic Asset Management. “Some countries would benefit from more rental properties , while France and Germany could do with more retirement villages”.

The research shows there are different needs depending on the age and the country in the senior housing market, just as there are in the wider residential market.

The sale/rent divide in Europe is also reflected in what kind and size of units are being developed.

The average size of apartments is bigger in the UK, 51 m2 compared to 41m2 in Germany and 44 m2 in France, and the projects in the pipeline tend to have even bigger sizes – an average of 93 m2 in the UK.

“In the UK people tend to move into a retirement home at an average age of 78, younger than in France or Germany, so they want a guest room for children, relatives or friends”, said Dib. “They tend to sell their home to move into a retirement home they have bought”.

Consumer expectations have changed and the level of aspiration has increased. What was the norm a few years ago is no longer acceptable.

Andrew Ovey, Head of Healthcare, AXA Investment Managers

“Some of our member companies don’t even build any one-bedroom apartments at all anymore”, said Michael Voges, Executive Director, ARCO. “They only build 2- or 3-bedroom units because people are younger, more active and they want to have guests and the rental option for larger flats would clearly be more expensive”.

The person’s age determines their choices, Voges said: “A 75-year old won’t rent a 2- or 3-bedroom apartment because at some point he would run out of money, but if you are 90 then it’s different”.

The sale model which prevails in the UK has its own challenges while the rental market has clearer rules. Finding financing can also be a problem because lenders need the terminology and the topics explained, and demand a track record which many new players don’t have.

“Lenders are still looking at the product like a housebuilder, with a pre-sale requirement”, said Andrew Ovey, Head of Healthcare, AXA Investment Managers. “This is tricky because our customers want to see the finished product before committing”.

In such a fast-growing market there is room for both rental and sale products.

“There are questions about whether to go for the for sale model or the rent model”, said Nabil Aquedim, Executive Director, Goldman Sachs Asset Management. “We think the market is vast enough to allow for both models to succeed, they can both grow and develop. It doesn’t have to be one or the other”.