Investors are lining up to participate in the growth of Europe’s senior living market, taking note of the niche’s impressive demographic attractions.
In France, a restructuring will reposition operator Domitys for further growth, strengthening its pipeline as the company looks to expand into other European countries. And in the UK, newly private McCarthy & Stone has lined up new investors to take a portion of its growing rental portfolio.
In Europe’s leading senior living market, France, leading brand Domitys is being acquired by new owners, as it agrees a restructure that will strengthen the group’s pipeline of new properties. Investor and developer Nexity is disposing of its majority stake in the Aegide-Domitys vehicle, to AG2R LA MONDIALE, in a EUR375m deal that will leave the latter with a 67% stake.
Domitys has 140 sites operational, largely in France, with a further 54 in the pipeline. It has already opened its first sites in Belgium and Italy, and last year saw revenues of EUR400m.
At the same time, Nexity is signing a long–term strategic agreement that will see it continue as a development partner, creating more senior living projects. “Nexity intends to confirm its leadership position in the serviced residences market,” said Alain Dinin, Next chairman and CEO.
In the UK, investment partners John Laing and Macquarie have established a new vehicle, Brigid Investments, to build a portfolio of retirement property. The pair are reported to have agreed to acquire up to GBP200m of assets from retirement home builder McCarthy & Stone, as it looks to move its business away from build to sell, to a rental product.
The pair will initially pick up a 250-strong portfolio of rented units, and commit to acquiring a further 400 units over the next year.
John Tonkiss, chief executive of McCarthy said: “Partnering with experienced and dependable infrastructure investors such as John Laing and Macquarie creates the platform to fund greater expansion of our rental offering and provides the business with a highly sustainable platform for growth. It also proves for the first time the retirement living rental proposition in the UK market.”
“Retirement living is a market with high barriers to entry and strong fundamentals, underpinned by an ageing population and constrained supply,” commented Richard Williams, CEO of Brigid Investments. “John Laing and Macquarie Capital are both leading investors in developing infrastructure, with significant prior experience of investing in specialised accommodation and broader social infrastructure.”
McCarthy was taken private in a GBP467m takeover by investor Lone Star in December 2020, after the company set out to find a strategic partner that would help the business transition from its established role as a retirement housing developer, to a rental landlord.
Tonkiss said the rental model was already gaining traction. “Our customers have jumped at the opportunity to rent. It provides greater choice and more flexibility and allows more people to access the benefits of retirement living.”
According to consultant Mozaic Asset Management, France and Germany are senior living markets with strong demand potential. In conjunction with Bonard, Mozaic has put together a report on the markets, indicating the scale of the potential in the 75+ sector.
With people living longer, the estimate is there will be 9.8m seniors in Germany, and 6.5m in France by 2025. Currently this age group accounts for 11.5% of the German population, while in France the equivalent figure is 9.6%. Mozaic says the sector is in need of better data to support the growth of senior living assets, to improve transparency and investor appetite.
Marcus Roberts, director of operational capital markets at Savills, says a growing number of institutional investors are ensuring senior living makes up part of their portfolio. “It’s certainly a product that institutional investors see as part of their residential investment strategy. The income stream is very similar to student – the fundamentals are the same.” Except that churn is much lower, with a five to seven year tenancy typical of the experience in France.
“There are certain countries where it is more culturally acceptable to rent,” says Roberts, and this has led to France being the largest market. In contrast, UK residents have a predisposition to own, while in Spain, elders either own or live with younger generations under the same roof.
With France now the established leading market in Europe, Roberts says operators are looking further afield, spreading into Germany and Belgium – and taking investors with them. “In Germany, Europe’s largest market, you are starting to see a senior living market evolving.”
Savills report that investors can currently enjoy a return premium for senior living investments, when compared to multi-family rental assets. In France, yields of 3.5-4.5% compare with just over 3% for multi-family, while in Spain a return of 4.5-5.5% compares with around 4% for family rentals.
Savills report that the pandemic had little impact on the appetite of investors for senior living. Across Europe, it registered GBP515m of senior housing investment deals in the first half of 2020 – a figure in line with the previous five years, and 25% above 2019’s first half figure.
In the allied, yet separate market of care homes, investors are also spotting opportunities. Swedish private equity investor EQT has recently announced a EUR300m Italian joint venture with construction company Arco Lavori to create a portfolio of care homes in northern Italy. Alessio Lucentini, EQT Real Estate’s head of Italy said the move was “investing in a sector which is lacking grade-A facilities and is expected to benefit from robust demographic trends in the country.”
And in the UK, Impact Healthcare Reit has just revealed a share placing to draw in GBP50m to help acquire a near-term pipeline of potential investments. It sees plenty of opportunity in a fragmented market, with a longer–term pipeline in excess of GBP150m.
HA Perspective [by Andrew Sangster]: An emerging sector has one characteristic that bedevils us hacks – what is it called? Sometimes senior living, other times elder living, sometimes retirement living, and sometimes later living.
Whatever it is called, there is little doubt that it is a sector in growth. The Urban Land Institute estimates that by 2037, one in four people in the UK will be aged over 65. And within the next decade the shortfall of homes with care will be 70,000.
The lobby group Homes for Later Living, which has McCarthy Stone among its backers, produced a report in February that claimed: “silver saviours can revitalise our high streets”. The premise is that a modest 45-unit retirement development, the typical scale, will generate close to £350,000 a year for local shops on nearby high streets.
If the UK were to build the 30,000 retirement properties each year that is required to keep up with demand, then an additional GBP2bn is generated each year in economic activity (from construction and spending by residents when they take up occupation). Just 8,000 or so were being built each year pre-pandemic.
Where retirement developments differ from mainstream residential is that there is the provision of extensive communal area to enable neighbours to socialise. Plus, there is an onsite team to look after the community. It’s all a bit hospitality like.
The biggest challenge for (let’s call them) later living developers is national cultural norms. Savills, among others, has identified this, pointing out that senior housing (another term!) in the UK has traditionally been focused on the sale model. But the sale model is being fatally undermined by overpricing and excessive service charges. Renting will deliver a fairer and more equitable model, both for occupants and their descendants.
It is not surprising, therefore, to see those parts of continental Europe where renting is more accepted, taking the lead is this new sector. The more flexible and dynamic approach is seeing later living combined with student and other accommodation types.
It is with this broader way of looking at things, the taking of a holistic rather than piecemeal path, that looks best placed to deliver the desired outcome for all stakeholders. Rather than fixed definitions, a more flexible tack is needed that breaks down the siloed areas of consumer need.
To get to this nirvana, there needs to be a considerable shift on the part of investors, operators and regulators. That shift is only just starting.