German demographics drive senior living opportunities

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An ageing population and senior living provision rates struggling to keep pace offers investors rich pickings, reports Nicol Dynes.

Growing demand and lack of supply has made Germany’s senior housing market attractive to investors. The sector’s potential is confirmed by the findings of the first in-depth report on the German market, commissioned by Mozaic and researched by Bonard. The research offers comprehensive, standardised and transparent data, which aims to provide investors with information and confidence.

“The senior living market in Germany has experienced considerable growth in the last few years, due to a rapidly and continuously ageing population and a significant shortage of assisted living establishments across the country,” says Julia Momotiuk, senior research manager at Bonard. “The provision rate does not exceed 3.9% now and will decline to 3.4% by 2025.”

“There are very good opportunities in Germany if you choose the right location and the right operator,” confirms Frédéric Dib, president of Mozaic Asset Management.

The report focuses on the top 20 cities in Germany, where current supply is 65,000 assisted living-type apartments, while there are 1,664,975 potential tenants aged 75 or above. 

‘The provision rate for senior living does not exceed 3.9% now and will decline to 3.4% by 2025.’

Julia Momotiuk, Bonard

Germany has the third-oldest population in Europe after Italy and Greece and it is forecast to grow significantly. The number of people above 75, currently 9.5 million, will rise to 9.8 million by 2025, while people aged 60 to 74 will grow from 14 million to 16.2 million in five years.  

The the biggest jump will be in Berlin with the current 359,000 inhabitants over 75 projected to increase to 485,000 by 2025. In all 20 cities surveyed, with the exception of Duisburg, the provision rate will decline in the next five years as the elderly population grows.

The average age of entry in a senior residence in Germany is 80. The pipeline is considerable, but still not enough. In Berlin, for example, there are 700 assisted living apartments being built, but 5,000 are needed.

“German developers and investors are building or planning to initiate more than 370 projects, with a total capacity of 16,300 apartments,” says Dib. “There’s a building boom across Germany but what’s coming to the market will not satisfy current demand, let alone cater for the expected growth in demand.”

The German senior housing market needs to open up to foreign investors, he adds. “The need is great, there is a lot of growth to come and the market has depth and maturity. Currently it’s dominated by domestic investors, but it needs to open up to international investors to meet the huge demand.”

‘There are very good opportunities in Germany if you choose the right location and the right operator.’

Frédéric Dib, Mozaic Asset Management

The attractions for investors are the imbalance in demand and supply, the growth potential and a prime net yield of 4.5% for senior living, compared to 3.9% for logistics and industrial assets and 3.1% for offices.

The German senior housing market is considered to be more attractive in terms of prime net yield than most other mature markets, including France and Sweden, both at 4.2%, and Norway and the Netherlands, at 3.5%, according to the Bonard report.

“I am very bullish about the market,” says Alexander Hubbard-Ford, managing director of Terragon Residenz Invest. “Given the demographics, the sky’s the limit.” 

Non-profit organisations also dominate the market: private companies operate only 30% of assisted living residences. In Germany’s top 20 cities, the provision rate is 1.3%.

The average monthly rent for a one-bedroom apartment in a private commercial service residence is €1,283, according to Bonard’s report. However, prices vary considerably in the 20 cities examined, from a high of €2,667 a month in Munich to €474 in Duisburg, although some places include meals, utilities and services.

The demand for privately-owned residences is being driven by high levels of disposable income. “German pensioners are very affluent, have a strong sense of independence and want to stay in their environment, even in their neighbourhood,” says Hubbard-Ford. “Facilities have to adapt to their expected longer lifespan but also to their lifestyle.”

Many residences therefore have boutique hotel-like reception and communal areas, services including trips and medical assistance but also swimming pools, fitness facilities and other amenities to combine assistance and independence, he says.

“The independent senior living segment of the market is not regulated and not subsidised and we hope it stays that way,” says Hubbard-Ford. As such it is more likely to attract private investment from both domestic and foreign institutions.

When it comes to nursing homes, investors must be aware of how the market is organised and regulated in the federal system. “It is complex because each Land in Germany has its own laws, so operators have to wade through a jungle of rules, which can be very specific and push up costs,” says Benjamin Cabanes, real estate director at French nursing home specialist Korian.

But there are many different opportunities to invest in a variety of assets and plenty of capital to be invested, he adds, so the outlook for the sector is very promising.

Number of German assisted living establishments and apartments in pipeline and provision rate

CityEstablishments in pipelineApartments in pipelineProvision
rate 2020 (%)
rate 2025 (%)
Dresden2442 4.63.6
Frankfurt am Main1804.33.9