Senior housing investment set for record year

The UK’s senior housing sector looks set to receive a record amount of annual investment this year. Knight Frank is tracking £1bn of transactions expected to take place before the year is out. Added to a record £2bn committed in the first nine months of the year, this would put the annual total of £3bn 50% higher than a year ago. Capital flowing into the sector has come from a variety of sources including UK pension funds and private equity players, according to the agency’s Seniors Housing Annual Review. Tom Scaife, head of seniors housing at Knight Frank, said: “Capital has recognised the market opportunity of seniors housing. There is a huge addressable tenant market with high levels of affordability, given many are downsizing from unmortgaged family homes. “There is also an imbalance between growing demand and extremely low supply. Rental growth and long-term cashflow growth are underpinned by HPI and inflation-linked tenancies.” The sector is seeing rising investment despite geopolitical and economic uncertainty, as investors continue to look beyond the short term when investing in senior housing. Knight Frank’s team argued that integrated retirement communities provide investors with a development return and long-term cashflows, underpinned by a deferred management fee on the exit for-sale model and inflation-linked tenancies on the rental model. The IRC pipeline has recently overtaken the retirement housing pipeline for the first time. A survey conducted by Knight Frank of 54 institutional investors managing £76bn in residential assets across the UK showed 31% are currently active in the senior housing sector, with two-thirds expecting to be active in five years’ time – the largest projected increase of any sector in the survey. The demand for investment in the sector also originates from the undersupply of age-appropriate housing for senior people. Knight Frank predicts a 24% increase in the 65+ population between 2021 and 2031, equating to an additional 2.5m people. Scaife added: “Covid showed that it was safer for a senior in the UK to live in a managed housing scheme with onsite services than in their own residential house. The sector has stood up well, with year-on-year investment set to increase in 2022. Exciting trends include scale, urbanism, mixed tenure, rental, and activity in higher price points. Investors are focused on both development returns and long-term cashflows, which are underpinned by an exploding wealthy seniors cohort with the means to downsize.” Based on the pipeline of deals and projects under offer or on the market, the supply of age-appropriate housing in the UK will grow by 8%, or around 63,000 homes, over the coming five years, meaning there would be 119 senior homes per 1,000 individuals aged 75 by 2026. The expected demographic shift means that figure is down from 124 currently, and from 137 back in 2012. To send feedback, e-mail akanksha.soni@eg.co.uk or tweet @EGPropertyNews Image © retailTRUST