There are a number of drivers that will determine the direction and influence the rate of change in the Living Sector. We chose a number of guests who are actively engaged in the Sector to think about what are the main drivers of change, with a view to better informing the market as a whole about them.
WILL ROBSON (MSCI) - MARKET UPDATE:
- The UK has a lower exposure to residential, with 8% in comparison to the Netherlands with 59% and Switzerland with 47%.
- In the US, it is more representative of a similar kind of economy but with a developed and diversified real estate investment market. The residential exposure tends to be between 25% and 30%.
- Traditionally we consider the main UK asset groups to be retail, office and industrial of which residential has made up an increasing share, but in the US the multi-family sector (which were including senior living and student accommodation) is now considered an established fourth major group.
- In the UK over the period, 2005-2019 residential outperformed other asset classes by 2.5% per annum, whereas in the US residential underperformed by about a percentage point
- In general, most countries are getting a lower income return but generally strong capital growth.
- Up to 2015, there were particularly strong returns in senior living, probably because there were more development and transaction returns driving the higher return.
- By 2019, the UK institutional exposure rose to about 8% which globally seems quite low.
- Historically - insurance firms and other institutional investors didn't seem to want to get too far into residential for a couple of reasons:
- There was a view that the ultimate clients are those institutions that had a lot of residential exposure during their own homeownership;
- The perceived reputational risk of managing individuals and potentially having to remove individuals from homes because of a lack of rent payments.
- Nowadays, the reputational story around residential is more positive. The problems around housing shortages and affordability are leading a lot of people to dive into residential as part of a social ESG story.
RACHEL ORTON - SENIOR LIVING OVERVIEW:
- Currently, the traditional Build to Rent market, which has been very active, has plateaued somewhat but interest in senior living schemes remains high and for understandable reasons, it is continuing to be an extremely investible sector.
- There is a distinct increasing divergence between the predominantly "healthcare" part of the market, (the care homes, which have been hit hard by Covid), and the retirement villages market, which has proven very resilient and are proving very popular.
- Three main trends that we are seeing:
- The repurposing of retail and leisure parks whereby there might be only one or two units that are still operational because a number of the former retailers are no longer viable. These are then demolished and being repurposed into senior living developments;
- A move towards mixed tenure on the same site – part traditional build to sell units which incorporate deferred management charges and part build to rent;
- The fact the senior living sector is embracing technology in the schemes much faster than people expect but this does come at a cost.
- The Government's proposed leasehold reforms and the abolition of ground rents have received a mixed reaction. A number of operators were already looking to move away from ground rents but some of the operators are very concerned about the abolition of this income stream.
- "WHEN THE SITES COME ACROSS MY DESK THE THREE CHARACTERISTICS I ALWAYS LOOK FOR IS WALKING DISTANCE FROM A CITY OR TOWN CENTRE, A WAITROSE AND A GASTRO PUB OR A GOLF CLUB."
- Car clubs or electric vehicle charging points are being included on senior developments so proximity is becoming less of an issue and new developments are gradually moving out
The topics below are key themes derived from the round table.
