The senior living space is set to grow substantially, as investors look to exploit a potentially massive market opportunity. But aside from the investment attractions, the sector’s management and operational side is drawing in seasoned hoteliers, and as it grows, senior living could well put further pressure on the hotel industry’s recruiters.
The sector began to show signs of really taking off in the last year. Knight Frank, in its 2019 report on senior living in the UK, noted that private equity, institutional investors and private family offices were all backing projects in the sector. Tom Scaife, the consultancy’s head of senior living, commented: “The largest proportion of international capital has flowed from North America this year.”
In the UK, the opportunity is set out by simple demographics. There are currently more than 12 million people aged 65 or over, a figure set to grow by 22% over the next decade. Numbers aged 80 or more will increase by 40% over the same period. The market covers all those from the newly retired, who may be active and in good health, through to those in later life who need higher degrees of support, ultimately potentially requiring the the more complete round the clock care offered by the traditional care home.
The market has, to date, tended to offer supported living on a for-sale model, but an increasing number of operators are now offering rental models, too. And among those making a sizeable bet on the space is Legal & General, which has backed a range of opportunities. In 2017, it acquired Inspired Villages, which develops out of town retirement developments, and followed that with the launch of Guild Living, focused on developing similar projects in more urban settings.
Among peers are Pegasus Life, which has a portfolio and pipeline of around 30 retirement village sites around the UK. Established in 2016 by US private equity investor Oaktree Capital Management, it is growing with further backing from AIG.
Inspired Villages currently has six developments completed, with a further pipeline of 20 sites and an ambition to grow the UK portfolio to 50. “We’re focused on the long-term management of the villages,” said Tom Lord, COO at Inspired – and a former head of global operations at InterContinental Hotels.
Inspired sets out to fill the gap it sees in the UK senior market, between those downsizing from their family home, and the traditional care home offering. That means providing homes for the active retiree, providing support and intervention as necessary on a flexible basis. “We focus on the holistic well-being of our residents, helping them to live better, for longer – living the best life you can,” said Lord. It is a management intensive business, offering residents a range of activities ensuring physical and social wellbeing – a site will typically offer around 100 activities every month.
“As long as you can live safely in your own property, we can accommodate you,” said Lord, whose company offers long leasehold properties from GBP250k. It is also developing rental options. Residents pay an inclusive management charge, to cover the cost of the site’s amenities – typically only paying extra for meals in restaurants and cafes on site.
Lord, who has hired other team members previously in the hotel sector, told Hotel Analyst: “This is still hospitality, but far more fulfilling. Talk about personalisation of service – we get way beyond the level of a hotel.”
Senior living’s growth presents a challenge and an opportunity. Knight Frank’s Scaife proposed: “We need to come together to find and create the employment base to meet the growing business opportunity.” Private senior living schemes typically need one member of staff per six units, according to KF’s research, with payroll accounting for 44% of a project’s running costs.
Inspired helps residents with support, including domiciliary care, but does not itself offer round the clock support for highly dependent individuals. “I think there will always be a need for care homes,” said Lord, “as they are a better way of delivering higher, more intense levels of support.”
HA Perspective [by Chris Bown]: It really does start to feel as though the coming year or two will see developments starting to be delivered at scale, into the senior living market. Thanks to the UK’s dysfunctional housing market, there are plenty of well-off retirees, ready to downsize from large and highly valuable homes – just so long as there’s an attractive offer for them. The growing number of retirement villages means that attractive offer is more likely to be just down the road.
And there is plenty to like about the retirement village option, not least that it keeps people engaged, and healthier, than if they were living alone in their own homes. Care, when needed, can be provided more swiftly and efficiently – in the case of falls, for example, providing a far better outcome too.
It is a fact, and no criticism, that the first wave of retirement developments are focused on more well-heeled retirees. While the demographic numbers are impressive, the challenge will be modifying the model to ensure it can still work, for those with less of a cash cushion behind them.
With the sector’s growth will come further pressure on the pool of hospitality sector talent. Lord has jumped the fence into this new senior hospitality niche, and is taking others with him. The commonality of service delivery prompts us to wonder, when will a hotel management company make its first successful pitch to run a senior living village?
Additional comment [by Andrew Sangster]: Knight Frank reckon (as of April 2019) there are 477,000 beds in the UK care home sector. With the hotel market something over 700,000 rooms on most estimates, care homes are not that much smaller a market.
But the senior living piece is, at present, significantly smaller, albeit fast growing. And it is in the senior living area where hoteliers skills are most transferable as experience with providing specialist care is less important.
But across the healthcare space the parallels with hotels are striking: occupancy and weekly fees are the primary trading KPIs. The favoured profitability measure is EBITDARM – earnings before interest, taxes, depreciation, amortisation, rent and management fees. Knight Frank reckons that EBITDARM is in the mid to late 20s on average.
Those who have been in the hotel space a while will remember when Marriott had a significant senior living business in the US. It exited at the end of 2002, selling out its operations to specialist players Sunrise and CNL for USD410m (including the earlier Village Oaks assisted living sale).
Are hoteliers likely to move in on the space again? Probably not. But investors certainly are and are looking at opportunities in senior living and healthcare alongside other operational real estate plays such as hotels.