ARCO summit: senior housing is attracting more investors
More investors are planning to put their capital in the senior housing sector, delegates heard at ARCO’s 2023 Annual Conference, “Rising to the challenge”, which took place in London this week.
“Investors are diversifying their strategies and the active interest in the sector will more than double in the next four years,” said Tom Scaife, partner, head of seniors housing, Knight Frank. “Senior housing is an obvious choice, given demographic trends. By 2030 there will be an extra 4.2 million people over 65 in the UK, while the number of under 65s will stay the same.”
A Knight Frank survey of investors shows that 17% are currently deploying capital in the sector this year, but many more are planning to do so in future – the percentage rises to 42% in 2026.
“Offices are currently the first asset class in the UK, followed by the living sector, but that is set to change,” said Scaife. “In the next few years what we’ll hear more and more is investment in demographics, not GDP.”
Nearly a quarter (23%) of all investments are in residential, but care homes still account for a very small proportion of that. The level of undersupply is massive and growing. Only 3% of new houses being built are for seniors, whose numbers continue to increase. The percentage of people aged between 85 and 94 is set to increase by 170% by 2030.
“We need to provide more capacity in the system,” he said. “The sector is still evolving to operational real estate based on long-term cash flows, service levels are improving and rental & mixed tenure are coming to the fore.”
‘Build it and they shall come’
Within the sector, the traditional retirement housing model has underperformed, while integrated retirement communities (IRC) have outperformed every year in the senior housing price index.
IRCs, as defined by ARCO, offer older people the opportunity to live independently in their own home as part of a wider community, with wellbeing and care services available to support their independence. The homes can be available to buy, to rent or for part purchase.
There has been a pivot to IRCs, which accounted for 44% of the market in 2018 but will reach 60% by 2027.
“Given the data, it is not surprising that capital is piling into the IRC model,” said Scaife. “Seniors’ concerns are similar across the Western world: they all want to remain independent for as long as possible. The line I hear most frequently from people who’ve made the transition to IRC is ‘I wish I had moved sooner’. So my advice based on experience is: build it and they shall come.”
