Are integrated retirement communities the solution to the emerging later living crisis?

The UK’s burgeoning build-to-rent (BTR) sector – which reached more than 78,000 homes at the end of last year, with nearly 50,000 more under construction – offers a potential model.  

But whereas BTR schemes are typically aimed at young professionals and families, integrated retirement communities (IRCs) targeted at those past their working life could be the answer to an emerging later living crisis.

Like BTR developments, IRCs provide self-contained homes set apart by their focus on the provision of amenities, but with the addition of care packages (rather than nursing) where required. These developments sit somewhere between traditional retirement and care homes, open to a range of age groups and allowing the provision of care to grow as residents require it. Some even promise a care home operated separately on the same site for residents to migrate to if needed.

The success of the retirement housing sector in the United States is proof that this model works. Just as the UK’s BTR developments have drawn on the American multifamily sectors successes, IRCs could well be placed on a similar trajectory.

But according to data from Savills, delivery of IRCs stands about 20 years behind where it currently is in United States. Only 1% of over 65s in the UK currently lives in this type of development, compared with 6.8% across the pond. If current trends continue, with the sector adding around 4,000 homes a year, this figure is set to rise by only 0.3% by the end of the decade.

A combination of factors means that, if investors adopt the right strategies, IRCs could be poised to replicate the same success in this country. Care home costs are soaring thanks to a shortage of workers in the wake of Covid-19, while the limited pool of existing retirement housing is deteriorating in quality.

On top of this, people are also increasingly renting at older ages. The proportion of over 65s renting their homes privately has increased by 74% since 2006, according to JLL.

Like BTR, integrated retirement homes present an attractive investment opportunity. Rental homes provide investors with long-term income streams that act as a hedge against inflation, in much the same way fixed-income investments like sovereign bonds do.

But to really succeed, investors will need to demonstrate an intimate understanding of operational real estate, or put another way, be as competent in running a net operating income business as they are at being a developer. This will of course include paying attention to what older people need from their housing, but it also means being able to model reluctancy to move, strategies that will get an inheritee’s blessing, and longer lease up phases, to name a few – before one even contemplates the intricacies and staffing levels required for later living.

While the growing success of the BTR sector is a useful starting point for the delivery of IRCs, operational strategies in senior living are vastly different from that of traditional build-to-rent developments. While the stereotypically successful build-to-rent development is replete with amenities like gyms and co-working spaces, an older generation comes with a very different set of demands. Greater attention may need to be paid to, for example, accommodating the mobility needs of residents. As with other operational real estate sectors, getting customer demands right will be the driver of success in this sector.