22nd October 2020

Host and journalist: Paul Norman, CoStar

Attendees:
Richard Bourne, Martin’s Properties
Tom Martin, Martin’s Properties
Justin Shee, The Kohab
Tom Scaife, Knight Frank
David Whiteley, Whiteley Consulting
Will Thompson, Barclays
Martin Lyne, Independent Healthcare Business Consultant

Property Investment and development firm Martin’s Properties focus has been diversifying its property portfolio over the last five years under the stewardship of Chairman Tom Martin and Managing Director, Richard Bourne. With Tom Martin’s background working at Affinity Housing Group the next stage of its diversification sees them looking to Retirement Housing and how its experience as both developer and operator can bring an interesting, high efficiency model to the market.

CoStar News was invited to host a Round Table to discuss the Retirement Living landscape with a panel of industry experts. Tom Martin and Richard Bourne were joined by: Knight Frank’s Head of Senior Living, Tom Scaife; The Kohab Founder, Justin Shee; David Whiteley of Whiteley Consulting; Barclays Head of European Healthcare Investment Banking; Will Thompson; and Independent Healthcare Business Consultant, Martin Lyne.

The Covid-19 Pandemic has brought retirement and later living into sharp focus alongside a shift to prioritising health and wellbeing. Traditional care homes have been heavily impacted and across the sector there are now further regulations and staffing challenges which will remain for the long term.

Knight Frank forecasts the UK rental seniors housing market to increase by 160% in the next five years with Covid-19 pandemic accelerating the demand for rental housing with care. Justin Shee said the pandemic had increased appetite for Covid secure co-living developments as people face a winter with further isolation and reduced social contact.

Tom Martin agreed that Covid has served as a “wake up call and made us focus our minds”.

“Retirement living is typically an event-driven decision but the pandemic has brought a greater awareness of our health. There is now greater appeal to being with people rather than being isolated. The challenge is the perception of being part of a community married with keeping fit and well in a shared space,” Martin added. “Our model is rented. Retirement residential gives you stable predictable long-term income. The appeal of renting retirement living is that you can swiftly move within weeks rather than months.”

With the NHS facing its biggest challenge in decades hospitals are looking to minimise stays and encourage rehabilitation elsewhere.

“The aspect of people being in hospital for shorter periods of time creates challenges and opportunities for the sector,” said Martin Lyne. Lyne sees developments in the healthcare industry as creating a further move towards independence for longer.

Lyne says there is expectation that diagnostics will continue to improve and be offered locally meaning major procedures will become less invasive and reduce the time needed for rehabilitation. Improvements in joint replacements will also mean that these can withstand greater physical endurance and will last longer. “This will have a huge impact on the sector as the aging population seeks to remain active for longer,” Lyne said

Alongside keeping active the so-called “baby boomers” prioritise staying within their community and living somewhere that looks and feels like conventional housing. Justin Shee said that “there is a lot of fear and negativity around retirement living”, however. Will Thompson said “expectations have changed in terms of design, feel and fit out” adding that “quality schemes have a ‘WeWork’ feel to them”.

KF’s Scaife says there has been a design evolution. “Over the last five years there have been an additional 40,000 units added to the sector. This growth has been fuelled by institutional capital and the market has grown up. Operators with institutional capital behind them have brought in architects from abroad with experience behind them and taken the time to understand what their residents want and what they can afford.”

Will Thompson said the challenge with this new type of housing is they are “health care light’ and relevant health issues such as mobility and dementia need to be addressed.  

Underlying demographic trends underpinning the sector will continue, according to Knight Frank’s latest “The investment case for Senior Housing” report. The UK’s population is ageing and by 2037, it is forecast that 13% of the population will be aged 75+, an increase of almost 60% from today.

The report highlights a substantial imbalance between the rate that the population is aging and the delivery of senior housing with only 9,500 senior living homes completed in the UK in 2019. With the senior population representing the wealthiest demographic in terms of property values, the fundamentals of affordability are based on this property wealth, alongside income from pensions and investments. Knight Frank’s analysis indicates price growth within the sector stands at 55% since 2009 compared to average house price inflation across England of 42% over the same period.

Will Thompson said the future of the sector will be driven by real estate companies with investment from private equity having “dried up” recently.  Tom Scaife agrees “investment capital isn’t ready for opcos. The operational side of this sector requires long term patient capital.”

David Whiteley predicts there will ultimately be a big shake up for the sector as so many of the early providers have not really got a sound and properly priced strategy and some are now seeking to tinker with their DMF models to narrow the gap; but this is not easy with often many long-term leases in place. The successful players know their customer demand drivers and, ensure too, that both parties win, but are often struggling to acquire sites with planning; thus David’s call for a separate retirement class when it comes to planning, this sentiment was echoed across the panel.

With real estate companies looking to shake up this market they will look to different models. One such company looking to bring a new offering to the market is Justin Shee’s The Kohab which seeks to offer multi generational independent quality homes in cities, with amenity spaces, events and activities, all supported by Kohab customer service. Shee said: “There are big opportunities and challenges around developing homes now. With operators able to position independent living via ‘your own front door’ allowing residents to be somewhat isolated when needed alongside onsite services. One of the biggest opportunities for the sector that Covid has created is the acceleration of the older generation embracing technology.”

Martin Lyne said he supports the idea of co-living as it brings with it broader well-being benefits. He said: “For people in retirement living mental gymnastics is so important. Within dementia care there are examples in the US where they are bringing a Montessori philosophy and reliance upon one another which brings together the community.” From a finance point of view Will Thompson said the multi-generational credit profile of tenants is “very financeable”.

For real estate companies to succeed in this market Tom Scaife and David Whitely insisted that companies needed to research and understand their market. They saw the emergence of new offerings as healthy for the market.

David Whiteley commented “People need to build highly attractive village apartments, facilities and spaces but, once achieved, this becomes hygiene, and it is the soft parts that will be the true differentiator.” One of the key decisions for investors is location.

Tom Martin predicted “the emergence of the urban”. “Institutional investors are now looking around urban centres. B&Qs in city centres are perfect as this allows residents to remain and be part of the community. Our core focus for this sector is around London and the South of England, in particular strong local towns of Croydon and Hampsted.”

The rise of urban developments are beginning to emerge and Tom Scaife said KF is starting to see masterplans which “incorporate senior living, as part of a scheme, as opposed to a single building, alongside university teaching spaces and nurseries”. Scaife sees retirement living as a boost to development communities creating a sense of place as they use the community at a different time of day.

Tom Martin cautioned that for real estate companies to prosper in this space, they needed to get the “what, where and how” right with new build developments offering greater ability to control things tightly and design the product around the resident.

Richard Bourne added: “If it looks like a PRS scheme and attitudes change the space can be flexible and adapted to a new market.”

David Whiteley added: “To succeed people need to have a strong view of their brand and test it and apply rigour before paper turns to bricks and real costs.”

With Knight Frank citing planning issues as the largest barrier to growth for the UK senior living sector and Robert Jenrick’s latest PDR much debated the panel focused finally on the key challenges and opportunities for the sector. Tom Martin said: “Historically deals have only taken place where the local authorities understand the need. The high street may be the place for smaller schemes.”

Will Thompson saw the High Street as a “clear opportunity for the sector” but Justin Shee said he had found it “impossible to compete with typical residential developers”. Shee agreed with Tom Martin that there needs to be further planning reforms and to identify who needs to be at the heart of schemes. “All the debate around Covid and key workers has identified the need for care providers and those who need care to be near services.”

Martin Lyne agreed that the High Street offered opportunity as city centres provide good transport links and many services. David Whiteley argued: “How do you compete for land against hotel and residential providers?” He said retirement villages will become more significant.

Will Thompson called for “more encouragement for older people to sell their homes and go into rental.”

Tom Scaife concluded: “the government needs to implement a retirement living act and as a society we need to change the optics around ageism and stop the ‘them and us’ mentality.”

Click here to watch the discussion in full.