Living sectors: The growing demand for specialist Later Living facilities

The UK's changing demographics remain the fundamental driver across all living sectors, as we briefly discussed in our Outlook article last year.

This trend is driven mostly by the nation's ageing population, which is increasing the demand for new types of age-appropriate housing. Currently, the UK's over-65s make up roughly 20% of the population, a figure that is expected to rise significantly, with an additional 1.5 million people projected to join this cohort in the next five years alone.

This demographic shift is creating urgent demand for everything from fully equipped retirement communities and dedicated care homes to smaller, tailored properties that enable older households to comfortably downsize (or "right-size") out of larger family homes.

Supply shortfall and investment opportunities

However, the supply of Later Living homes in the UK lags behind its international counterparts. Data from the ONS confirms that only about 0.6% of all over-65s currently live in dedicated retirement communities in the UK. This contrasts with figures of 5-6% seen in established markets like New Zealand, Australia and the USA. This low provision is exacerbated by a chronic housing shortfall: it is estimated that the UK requires the delivery of 30,000 to 50,000 Later Living homes per annum to meet demand, yet the industry is currently managing to add only around 7,000 each year. This severe undersupply highlights the critical investment and development opportunity within this sector.

Investment in the sector: defensive and sustainable

In the investment market, investors clearly recognise the attractions of institutional-grade living assets. These assets offer defensive cash flows, compelling risk-adjusted returns, and unique stability. Their illiquidity is viewed as a beneficial feature rather than a drawback, providing genuine value through portfolio diversification.

Investment in the living sectors is underpinned not only by strong fundamental demand but also by the defensive and sustainable nature of their cash flows. As an investment, these assets exhibit strong equity and fixed income characteristics, making their stability highly attractive.

The potential move by more patient capital into private real estate sectors could be a real driver for more 'Core and Core+' deals. Critically, this could also lead to an increase in forward funding transactions, a type of financing the Later Living sector has not frequently utilised until recently.

There is significant market sentiment focused on ensuring assets maintain a strong and sustainable Net Operating Income (NOI). This goal is currently driving strong demand for 'low-to-no amenity' institutional Private Rented Sector (PRS) investment stock, such as is seen in large-scale housebuilder regeneration schemes.

Achieving better NOIs is invariably tied to effective asset management. Amenity-light assets have moved into the spotlight due to their unique position in eschewing operationally expensive features such as pools, gyms, or hospitality service levels that require extensive on-site staffing.

In summary

Investor sentiment in moving away from high amenity and towards lower amenity schemes is partly driven by a truth of supply and demand. In short, the demographic cohort of higher-end renters attracted to amenity-led multi-family housing schemes is finite, serviced by the majority of the UK’s BTR schemes at present, and targeted by a wide range of operators.

For investors wanting to focus on premium rental product, the Later Living market is hugely undersupplied, capital-rich, willing to pay a premium for amenity and service, and forecast to grow over the next decade. Hence, Later Living could provide the next great destination for institutional investment in our sector.