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Evaluating the United Kingdom Senior Housing Market

by Published On: Jul 20, 2011

Herbert J. Sims & Co. was engaged recently by a major U.S. equity firm to evaluate a senior housing opportunity in London, England. The Sims team, led by Jeff Sands and Curtis King, studied the evolution of senior housing in the U.K. and had the opportunity to travel to London and meet many of the major players in the U.K. market. They also toured a number of U.K. retirement communities.

Their overall impressions were as follows:

  • The demand for senior housing in the U.K. is significant, fueled by an increasing aging population. As in other countries, the fastest growing segment of the population is the 85+ group. At the same time, on a macro level, the senior housing market appears to be underdeveloped. For example, in the U.S. 12% of the population over age 65 live in some form of senior housing. In the U.K., the penetration rate for seniors housing is 0.4%. 
  • The housing market has bounced back in the U.K. and has been especially strong in cities such as London. The London market is a particularly strong market fueled by strong demand from wealthy foreigners looking for a “safe haven.” This has led to a surge of non-senior focused residential housing. However, recent changes in zoning laws requiring private housing developers to provide affordable housing units and meet strict environmental requirements, has opened the door for senior housing which, to date, is not affected by these new restrictions. 
  • The emerging model for retirement housing is similar to the U.S. type CCRC. Facilities provide independent living and some care component. Older projects have focused on home care services. Newer projects include nursing home beds as well. With the U.K.’s predilection for home ownership, residents generally buy a long-term (150 year) lease to their unit. They pay a monthly service charge for access to services and generally pay á la carte for any services actually used. Developers make money from a combination of:

    1. Profit on the initial sale of units.
    2. A Deferred Management Fee (DMF), which is collected when the unit is resold. The DMF is generally equal to 10% to 20% of the resale value of the unit.

While there appears to be a strong potential market for retirement villages in the U.K., the product U.K. type is relatively new. One of the biggest challenges for senior housing developers will be to educate the public, lenders and zoning officials on benefits of senior housing and especially those providing a continuum of care. 

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