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Retirement Villages: A Haven For Investment?

As New Zealand contemplates the potential ramifications of its ageing population, the retirement village sector is certainly one worthy of observation for investors, JLL NZ valuation advisory director, Paul Ben-Nathan, writes.

By: Paul Ben-Nathan

1 August 2020

We hear so often that there is no “silver bullet” to the implications arising from our ageing population and I totally agree. But there are growing opportunities that, if not silver, at least provide shinier prospects than other more heralded ventures to make significant and more immediate inroads. Retirement villages are one such opportunity.

They are a massive part of the wider residential property market sector. Look around. They’re popping up everywhere with residents queuing to look around show units. The sector with its long history in New Zealand is now well established and we expect it to continue to grow, backed by strong fundamentals.

Residents buy into a village for the companionship; activities and resort-style amenities; the security; the lock-andleave lifestyle with limited maintenance; and the potential for longer-term care if needed. Today, many elderly people have embraced the idea completely, and the socialising is a key drawcard.

A range of market participants are currently developing villages, from small investors developing boutique villages, through to large listed companies developing villages with hundreds of units. This is all underpinned by New Zealand being recognised around the world as an exemplar for its retirement living accommodation sector.

The retirement sector has so substantially evolved as to now have become a recognised key part of the housing solution for New Zealand’s senior population.

‘There would be demand for more than 17,500 additional units by 2028, underlining in hard red Sharpie the investment case for the sector’

The Grey Wave

The key target population for retirement villages in New Zealand is those who are over the age of 75. So now for the numbers.

In 2019 there were estimated to be almost 325,000 New Zealand residents in this group (Statistics NZ). By 2028 this key demographic is forecast to surge by more than 50% to 485,800. Catering to this “grey wave”, JLL’s 2019 New Zealand Retirement Villages Database (NZRVD) identifies 403 villages with 34,592 units, which based on an estimated 1.3 residents per unit gives around 45,000 residents currently in retirement villages – 13.9% of New Zealand’s population over the age of 75.

At a regional level, combining this percentage penetration rate with the 75+ population forecast to 2028 shows an expected increase of more than 23,000 residents, which would mean that the total retirement village population would be around 68,000 residents by 2028.

And so finally, assuming the residentto- unit ratio remains at 1.3 this would mean that there would be demand for more than 17,500 additional units by 2028, underlining in hard red Sharpie the investment case for the sector.

The Big Six

The six largest retirement village operators – Ryman, Metlifecare, Summerset, Bupa, Oceania and Arvida - are significant players in the New Zealand retirement village market. Between them they have between 25 and 34 villages each, which is 42% of the national total by village number. But they operate larger than average villages, so account for just under 60% of the national unit numbers.

As an indication of the relentless demand, they are all busy expanding their operations and together comprise a development pipeline of almost 12,000 new units, 42% of which are located at existing villages and 58% at new villages.

Auckland, Hamilton, and Tauranga (often referred to as the Golden/Olden Triangle) continue to garner the most interest with more than 50% of the development pipeline based in this area.

Opening Up The Ladder

The upsides of buying into a retirement village are not just about the benefits for retirees. For starters, most new residents are downsizing, freeing up the family home, which increases the housing stock available to younger families.

The distribution of this growing population segment across New Zealand will reflect both ageing in place, which means that areas with the largest populations will have the largest growth in the elderly population, as well as internal migration - where elderly residents move out of the main conurbations often to coastal or rural areas.

The movement of elderly residents out of the big cities will help boost the populations of these destinations. They also bring with them their released residential equity together with freeing up housing in cities they have left for younger residents and families.

The large populations of Auckland, Hamilton and Tauranga, as well as attractive coastal locations near these cities, are likely to continue to be attractive to potential retirement village residents, supporting demand within the Golden Triangle.

The Full Package

Aged care facilities, including rest homes, hospital, and dementia beds, were once separate from retirement villages. However, increasingly they are becoming integrated, as villages are adapting to demand to provide a “continuum of care” to their residents.

Of the 403 villages identified within the NZRVD 2019, 265 or 66% contained an aged care facility. An estimated 18,570 aged care beds are located within aged care facilities, within retirement villages - approximately 49% of the total aged care industry’s bed count. This reduces the risk and impact of a move from independent living to a greater level of care, allowing residents to remain comfortable in their village.

We would expect that moving forward, a greater proportion of villages will have a care element, and we have already seen an increased number of care beds being developed and sold subject to an Occupation Right Agreement (ORA), providing additional revenue to the operator and a high quality product to meet the needs of the resident.

What About Covid-19?

Of course, there’s no hiding from the elephant in the room. The global pandemic has introduced many new challenges to the industry and we are continuing to monitor this closely. While there will undoubtedly be some short-term disruption and additional costs like protection equipment and increased security, I believe that as things stand it is looking positive in the longer term. Initial feedback so far from operators has been that villages have succeeded in providing a protective community for residents during lockdown.

Provided this view of being considered “safe havens” continues, it’s not a controversial statement to say that the attraction for potential new residents will rise and son too consequently the penetration levels.

What It Means For Investors

As the statistics presented in our latest research show, the retirement village sector is set to provide plenty of opportunities for investors both now and into the foreseeable future. While developments continue to come out of the ground, this is to meet ongoing resident demand. As long as the industry continues to deliver the right product to the market in the right locations we would expect to see the sector continue to deliver growth.

A lot of the development will be done by the Big Six operators, who have strong development arms. However, the continued roll-out and marketing of their product will only help raise general awareness of the retirement village
sector, which benefits the industry as a whole.

The challenge for smaller investors is really to find their individual niches to provide bespoke high-quality units, which will improve the range of options for future residents.


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