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Real Estate’s Distress Could Be A Boost For Senior Living

JLL's Verity Knight, Elysian's Giles Stevens, Legal & General Capital's Ben Rosewall, Tristan's Kristian Smyth and JLL's Anthony Oldfield

A weaker market for residential sales and the need for companies to find fresh equity could provide a boost to the UK senior living sector in 2023.

That was the view of experts at Bisnow’s Later Living Housing Market Review, held at the Royal College of Surgeons of England.

“I expect there to be some distress in the wider residential market if the much-discussed forecasts for house price falls come to fruition next year,” Elysian Residences Acquisitions and Investments Director Giles Stevens said. 

Halifax this week said UK house prices could drop by as much as 8%. Stevens said predictions like that could cause landowners, including large housebuilders, to reconsider whether to bring forward planned residential schemes. The same is true for owners of land earmarked for commercial development, with rents and values under pressure in the commercial market, too.

Conditions could lead to land prices falling, or, at least, not rising as fast, which would make senior living developers more competitive when bidding against other sectors. 

Senior living is a sector in which values and rents have been less volatile over time due to limited supply and high demand. That means it should outperform other real estate asset classes in an uncertain market, Stevens said.

He was not alone in that assertion. 

“I think for us, some of the headwinds facing the traditional sectors could actually be a tailwind for the sector,” Tristan Capital Partners Managing Director Kristian Smyth said. “We look at the financing markets, and I think the debt funds are looking for stronger sponsors, looking for more equity, and charging more for it. I think forward fundings will largely be dormant for the next 12 to 18 months.”

The next 12 months are likely to see consolidation in the highly fragmented later living sector, attendees at the event heard. The new year could also bring capital teaming up with operators in a field that requires a high amount of specialist knowledge, providing healthcare as well as bricks-and-mortar for older residents. 

“I think there will be some recapitalisation and consolidation of existing platforms in the sector,” said Verity Knight, JLL director of healthcare capital markets. “Just looking at our pipeline of work, we've definitely got some of those types of transactions ongoing. There will be a lot of new JVs that we're trying to create, trying to marry the right type of capital with the right type of partners in the space. That's where we really see the growth is going to come from.”

The event offered discussion about the changing model of senior living real estate in the UK. Typically, it has been a sector that saw older residents buy rather than rent homes or apartments.

But JLL’s Knight said rental models had proved resilient, pointing to a joint venture between McCarthy & Stone and John Laing that reached 700 units and had an occupancy level of 95%.

Real estate investors said they preferred a model based on rental rather than sales or shared ownership as it fits their need for income. Knight warned, however, that the industry could not move faster than the customer base in shifting to rental, with many older residents still preferring to buy a home.

“I think we've just got to be a bit careful,” she said. “I don't think we need to create the product to fit the model.”