Nick Sanderson, chief executive of Audley Group
An inflection point. That’s how Savills recently described the retirement living market in the UK. On the edge of a large expansion that adds yet more momentum to the delivery of specialist retirement communities.
It’s something that was seen in the US just a decade ago and the opportunity to align the UK with the more mature markets of the US and Australia is significant. It must be what we’re aiming for if we are to improve the way that we, as a country, look after people as they get older.
But why now? What is it that’s driving the UK retirement living market to be at an inflection point now? It’s a range of factors, many of which are important for investors keeping an eye on the potential in this sector.
The differences between the various types of specialist retirement living properties have become increasingly clear in the last few years. The type of operations you’ll see in the market fall broadly into two camps. The housebuilder model and the housebuilder/operator model. And it’s the latter that has been gaining the attention of investors.
A new term was recently coined in the housebuilder/operator model to rename what were traditionally known as ‘housing with care’ properties – Integrated Retirement Communities or IRCs. IRCs enable people to live in their own homes but importantly as part of a community, with access to amenities and care as and when they need it. At present there are 85,000 IRC units in the UK and the growth opportunity this presents this hasn’t gone unnoticed.
Over the last two years, the amount of investment committed to the UK senior living sector has totalled £4.6bn, with the vast majority of this heading to IRCs. Names like Audley Group, Inspired Villages, Riverstone amongst others are operators of IRCs and it’s here where you see investment coming from global, household-name investors including Legal & General, Schroders, Royal London and NatWest Group Pension Fund, Goldman Sachs and Blackrock.
At the same time, the government has acknowledged the role that IRCs will play in the future housing mix. Numerous government publications have been written on the subject and the Levelling Up White Paper, published in February, announced the creation of a cross-departmental government taskforce with the aim of improving housing options for older people bringing together care and housing into one conversation.
And the final factor that has led the market to this tipping point is one we’ve all heard before. Our population is ageing. By 2030, the number of over 65s in the UK is projected to total over 15m, which is 2.4m more than today.
If our sector continues at its current delivery rate of approx. 4,000 units a year by 2030 we would still only have a market penetration of 1.3%. This is dwarfed by the rates that are seen in the more mature markets which are up at 5 or 6%.
In the last six to 12 months investor and government sentiment has aligned on the potential in this sector and with the pressures of our ageing population only increasing, we have arrived at this inflection point. I have no doubt that the IRC model is set for rapid expansion and it’s something that investors should undoubtedly play a part in.