Investing in the elderly: the rise of care homes as alternative property assets

The world’s population is aging. Over the next 30 years, we will see an extra 15,000 people reaching retirement age every single day in Organisation of Economic Cooperation and Development (OECD) member countries. By 2045, for the first time in history, the elderly will have become the largest age group.

By contrast, in the UK alone 6,600 care homes are at risk of closure within the next five years and it is expected that, by 2021, demand for market standard care home beds will far outstrip supply with an estimated shortfall of 148,777 (according to Tomorrow’s Guides data).

Moreover, luxury retirement accommodation is in increasingly high demand as more and more of the affluent ‘Baby Boomer’ generation progress beyond retirement age. Chelsea Court, one of Britain’s most expensive nursing homes, offers 15 luxurious suites for between £2,000 and £3,000 per week, while the Berkley Care Group’s upmarket care homes each have 60-70 rooms costing residents £1,300 to £1,800 per week. The former is described as “more like a private club than a care home”, while the latter reportedly provides chauffeur-driven day trips, a gym, bistro dining, wine tasting events and comedy nights. CBRE’s Tom Morgan told the Financial Times that people are now viewing care homes as a sociable and mentally stimulating lifestyle choice.

Knight Frank’s UK Healthcare Property 2018 spring market overview notes that UK care home occupancy rates rose for the fifth consecutive year in 2017, while average fee levels exceeded retail price index (RPI) inflation for the fourth year running. Further, long-dated healthcare assets offer unexpired leases of up to 30 years, as opposed to the average commercial property lease length of seven years.

The combination of all of the above factors has led to a growing appetite among investors for high-end care home investments. Respondents to PwC’s recent Emerging Trends in Real Estate Europe report ranked ‘Retirement/assisted living’ as having the second highest investment potential in 2018 (after logistics facilities). Meanwhile, 23% of respondents said they are considering investing in this category, making it the third most popular niche sector for 2018 after student housing and hotels. Notably, Knight Frank advised on a record volume (c. £12bn) of healthcare deals in 2017, including transactions relating to Bupa Care Homes, Helen McArdle Care, Porthaven Care Homes and Regard Group.

At IQ-EQ, we too are experiencing an increase in structuring for this sector, both for owner-operated care homes and the more traditional long leasehold scenarios, where we have assisted clients in the acquisition of several purpose-built care homes let to reputable providers. We have also seen significant investment in the healthcare space, where our clients are working in partnership with local authorities, care operators, clinical commissioning groups and charitable organisations to help offer residents best-of-class housing.

Given the snowballing demographic and market trends, we expect that the presence of retirement and healthcare accommodation within the assets under our administration will continue to rise in the coming years. Endemic undersupply of quality care home beds promises to drive up prices and sharpen yields, while real estate developers will have significant opportunities to meet the escalating demand from consumers and investors alike.

We are also interested to see how demographic change will shape the future of the real estate industry as a whole – with the need for age-friendly accommodation sure to impact private residential housing development as well as commercial care homes. And then there’s the implications for the wider economy to think about… but that’s a topic for another day.