Are your properties Boomer-ready?
In the 2017 Commercial Real Estate (CRE) Outlook, our Center for Financial Services team highlighted health care real estate as a potential area of growth within the real estate (RE) asset class.
March 1, 2017
A blog post by Saurabh Mahajan, Real Estate manager, Deloitte Services LP
Health care RE is receiving increased interest from institutional investors, including foreign private equity and insurance players that are looking for long-term and above-average returns.1 Broadly, health care RE includes four types of properties: senior housing, medical office buildings, hospitals, and life sciences buildings. For purposes of this blog, I will focus on senior housing.
As figure 1 shows, senior housing properties have consistently outperformed other comparative property types over the last five years. Also, the fundamentals in this market continue to remain strong, especially for independent living facilities, a form of senior housing. (See figure 2).
Figure1: Comparative returns
While these factors do represent the current market attractiveness of senior housing, the long-term story is equally promising, thanks to demographic trends. Consider these facts:
- The senior population, aged 65 years and above, is the fastest-growing demographic in the United States, and rose 18.6 percent between 2010 and 2015.2
- 10,000 Baby Boomers will retire every day until 20303 and their retirement is expected to boost the senior population aged 65–74 years to 38.8 million in 20304 from 26.4 million in 2014.5
Boomers, the wealthiest cohort in the United States,6 could continue to exert influence, challenge conventional wisdom, and redefine their role in the American economy, as they did in the past.7 As such, they will play a significant role in shaping the future of senior housing. As a result, it is important to understand and address unique needs and preferences that Boomers may have with respect to their accommodation—state-of-the-art and customized living environment, increased comfort, and high-quality service.8 That said, there could be a cross-section of Boomers who have insufficient retirement savings and will need to be catered differently.
How can real estate owners and developers prepare?
So what do the above trends imply for RE players? RE owners and developers would need to identify opportunities and strategically choose their future property mix. They could consider cheaper senior housing options for Boomers who have limited retirement savings.
Having said that, there could be increased demand for specific property types, such as independent living, as the new generation of Boomers will prefer to be independent for a longer period of time.9 RE players can also consider investing in more sustainable communities with multiple levels of care or developing mixed-use properties with intergenerational accommodations.
Further, many of today’s senior housing properties are not equipped or designed to address the future needs of more demanding seniors. This could require owners and developers to consider changes in design and amenities. They could install smart home features to manage heating, ventilation, and air conditioning; lighting; and security as Boomers are quite interested in smart home technologies.10
RE players could also provide wearables and personal robots to assist seniors with many of their daily tasks and enable more socialization and edutainment.11 These systems and technologies can increase comfort and safety while enabling seniors to be more independent.
Clearly, there are immense opportunities for owners and developers to restructure portfolios and initiate service and design innovations in the senior housing market. These efforts, if initiated early enough, can reap the rewards for long. What do you think?
1 Amy Baxter, “Foreign Investors, Private Equity Snapping Up Senior Housing Real Estate,” Senior Housing News, November 17, 2016.
2 Rebecca Tippett, “State by State: Population Growth by Age, 2010–2015,” Carolina Demography, UNC Carolina Population Center, August 23, 2016.
3 “Baby Boomers Retire,” Pew Research Center, December 29, 2010.
4 Projected Future Growth of the Older Population, Administration on Aging (AoA), Administration for Community Living, US Department of Health and Human Services, accessed on February 20, 2017.
5 “A Profile of Older Americans: 2015,” Administration on Aging, Administration for Community Living, US Department of Health and Human Services, 2015.
6 Val Srinivas and Urval Goradia, “The future of wealth in the United States,” Deloitte University Press, November 9, 2015.
8 Ben Mandelbaum, “How baby boomers are redefining senior living,” McKnight’s Senior Living, October 03, 2016, http://www.mcknightsseniorliving.com/guest-columns/how-baby-boomers-are-redefining-senior-living/article/526420/.
10 New Study Finds Safety and Comfort Are Main Factors Driving Smart Home Technology Purchases,” Scripps Networks Interactive, December 15, 2016.
11Zallio, M. & Casiddu, N. (2016) Lifelong Housing Design: User Feedback Evaluation of Smart Objects and Accessible Houses for Healthy Ageing, 9th ACM International Conference on Pervasive Technologies Related to Assistive Environments – Corfu, Greece 2016. doi:10.1145/2910674.2935828.
QuickLook is a weekly blog from the Deloitte Center for Financial Services about technology, innovation, growth, regulation, and other challenges facing the industry. The opinions expressed in QuickLook are those of the authors and do not necessarily reflect the views of Deloitte.
Do not delete! This box/component contains css that is needed on this page. This message will not be visible when page is activated.