Rental opportunities provide retirees with choice and flexibility

Nearly 60% of all surplus bedrooms in the UK lie in households inhabited by over-65s and this level of under occupation is both a key challenge and opportunity in achieving a well-functioning housing market.

The UK has a chronic undersupply of age-specific properties; a survey of older people conducted by ARCO in 2020 found that 70% would be interested in moving to somewhere with support as an alternative to a care home, but 53% said their local area did not have good enough downsizing options.

By 2035, over-65s will account for 23% of the UK population; the group is growing at three times the rate of all other age groups in the UK. The number of people over the age of 85 is expected to rise even faster – to two million by the end of this year. These powerful demographic trends are driving long-term growth in demand for age-adjusted real estate.

An increase in the supply of senior living options for independent adults over 65 is not only a clear way to help solve the housing crisis, but would also help to mitigate the additional burden the ageing population is placing on the NHS; there is strong evidence to suggest that residents of integrated retirement communities (IRCs) visit a GP less frequently, require fewer ambulance callouts, and spend less time in hospital when the need arises. This is thanks to a strong emphasis on wellbeing and the property being better designed and adapted to meet their needs.

Evolving landscape

The retirees of today have aspirations for later life that are wildly different to those of their parents and grandparents; those retiring at 65 today can expect to live for at least another 20 years, and they have big plans. Research from Octopus Capital revealed that almost two out of three over-55s believe that retirement will be the best years of their life. When asked what they wanted to support their retirement lifestyle, restaurants and coffee shops came top of the list, followed by social areas and activities such as exercise classes and swimming.

Retirement living is a positive lifestyle choice – there are huge health benefits associated with living in one. They remove the stress of managing a larger property and the social aspect of community living has been shown to improve happiness, wellbeing and mental health. Retirement communities provide much-needed choice for older people and enable them to lead healthier, independent lives for longer, reducing pressure on care homes and health services.

Retirement rentals

Five years on from the Covid-19 pandemic, demand for greater flexibility in later life has only increased. This has led to a heightened appetite for later living rental options. Buying a new house is always a big decision – no matter how old you are or how many times you may have done it before. Retirees are now looking to towards renting as an option, to avoid committing to the greater investment involved in a purchase.

Renting also offers an affordable way to access a personalised, high quality, age-appropriate service. One key difference is retirement rental schemes tend to be in urban areas, versus care homes or for-sale retirement schemes, catering to residents who continue to interact with the local community, and have a demand for local amenities within walking distance.

Wellbeing benefits play a crucial role in strengthening the business case for the senior living rental model. As residents experience higher levels of happiness and remain for extended periods, operational efficiency improves through increased occupancy rates, reduced operational expenditures and lower costs associated with acquiring new customers and reletting units. Consequently, this leads to higher net operating income and, ultimately, a greater property value.

Investment opportunities

In terms of investment, there is a broader trend towards greater institutional interest into the living sector in general, including rental options. The later life rental market in the UK has huge potential, evidenced by the growth already seen across Europe. It presents a unique opportunity to diversify portfolios in a sector backed by strong demographic trends as the baby boomer generation approaches retirement, with the capability of generating value add return.

As it is nascent, there is still a significant spread between yield on cost and exit yield. This presents a compelling value-add opportunity, appealing in the current market, where such opportunities are increasingly scarce. For core investors, this sector offers the advantage of targeting inflation-linked cash flows, supported by lower tenant turnover – residents typically stay for an average of four years, compared with two years in build-to-rent (BTR) and one year in purpose-built student accommodation (PBSA).

As the demand for greater flexibility in later life continues to grow, retirement rentals provide an affordable and personalised solution, whilst presenting an opportunity for early investors who can move to secure prime locations, establish a recognisable customer-centric brand, and deliver a high quality portfolio of purpose-built rental assets.