That Europe’s population is ageing is well known – by 2060 almost one in three Europeans will be over 65 – but the continent’s housing stock has failed to keep up with its evolving needs. Very little purpose-built housing for older people has been developed and that shortfall includes not only care homes and assisted living for the elderly, but also housing for the younger end of the senior housing age cohort. Rasmus Nørgaard, partner and co-founder at investment manager NREP, discusses the opportunity to invest in housing for so-called ‘empty nesters’ in the Nordics and the new breed of residential asset the firm is developing in Denmark to cater for that demographic.
PERE: Who are the ‘empty nesters?’
Rasmus Nørgaard: Senior housing in general can be roughly defined as catering for people from around the age of 55, when their kids leave home, until they die. There are many different needs and segments within that. We have been looking closely at the younger segment, age 55 to 75, but when we called it “active seniors” we came to realize no one in that age group wants to be called ‘senior’, so we have been referring to them as ‘empty nesters.’
Our research shows empty nesters want access to social interaction and common areas to spend time with like-minded people for activities. They don’t want to live in something that feels like senior housing, but they want to be in a place that is future-proofed so that they can stay there as they grow older. Many also want access to nature and green areas while still enjoying access to public transport, services and other conveniences.
PERE: What housing options are currently available to these people?
RN: In our part of the world there is not much housing provision between the family home and a nursing home. As people get older they increasingly look for a future proof home, but there are few bespoke offerings in the market. That creates an opportunity to develop assisted living schemes and also for housing that caters to the younger part of that market, the empty nesters.
In Denmark there are only around 10,000 senior co-living housing units but that is really a drop in the ocean. Our research shows there is demand for another 100,000 units. The country has a long tradition of community living. These are relatively small communities of 20-30 units where people may eat together with their neighbors for four or five days of the week and share in the duties like cooking. It is extremely popular, but it also scares a lot of people away because it is too much of a commitment for them. Also, empty nesters don’t want to live in bespoke senior communities because they don’t want to be framed as a senior.
PERE: How has NREP approached designing a residential product that caters for them?
RN: We found that families with children also want to live in mixed communities. So while we started out trying to create a housing product for active seniors, we ended up designing what we call Plushusene, or ‘Plus Housing’, for the Danish market. The developments will house a mix of families with kids and the active seniors, split roughly half-and-half. They will be modern row houses for rent in suburban locations around the bigger cities with small gardens and larger green areas for the whole community.
Plus Housing aims to appeal to a much wider group of people by giving them access to the positive features of community living without the same obligations. Each Plus Housing site will consist of 100-200 units, larger than a traditional community housing scheme, so that it is possible to build bigger common areas, gyms, workshop space, guest rooms and other facilities. The homes will be laid out in small clusters of 10-12 houses, each cluster either for active seniors or families, but those clusters are mixed up so that your immediate neighbors will be people with the same profile, but the next cluster will be different. A host will be employed to facilitate the community. For example, if there is interest in having a running club the host will figure out how to set that up and who wants to take the lead on an ongoing basis, but they will not be directly involved after it is established.
Row houses for rent has been the fastest growing segment of the residential market in Denmark since the financial crisis. There is significant demand for that. This type of product is aimed at the mid-income market. Part of that age segment has saved up money in their current property, but not all of them. At least to begin with, Plus Housing will be for rent. However, some people in the mid-income category might prefer to buy, so we are investigating ways to mix owner-occupation and rental in a hybrid-type product where tenants can reduce their rent by making a down payment.
PERE: What kind of returns can developments like this generate?
RN: It is likely that a developer of this kind of scheme would make more money in the short term by selling, but the develop-to-let model has advantages. The development activity delivers high, opportunistic returns, while the letting activity delivers lower, core-type returns. Together, the two actually provide for quite a nice value-add risk-return profile. Returns will vary in each location because of the land prices, but on a platform level Plus Housing should deliver something like 15-20 percent IRR. The other driving factor is that if you can create a large platform – our ambition is to build 2,000 units of the Plus Housing concept – the greater scale will prove attractive to big investors and generate a portfolio premium.
PERE: Why is this type of residential asset in the Nordics an attractive investment opportunity?
RN: In a European context, the Nordic nations are some of the countries experiencing the highest degree of population growth and urbanization. Copenhagen, Stockholm and Oslo are growing at twice the rate of London, Paris and Berlin, which surprises a lot of people.
Investing in this region and sector you can get a little bit ahead of the curve by identifying the demand trends in the market that are not met by current supply, like the desire for community and a greater level of service and convenience. That makes these assets a little bit more future-proof than a lot of the other property we see being built. If you are not too aggressive at an early stage in your pricing for the added services you provide, then there is a potential upside in the long-term if people feel the total offering delivers more value to them than normal residential offerings.
Meanwhile, by better catering for some of the demand trends, then, from an occupancy perspective, you should be at the very low end of the risk curve. Yes, it will require more hands-on operational management than an office or logistics property, but that is not necessarily a negative because it also allows you to be closer to your tenants and deliver a stronger value proposition to them.
This article was sponsored by NREP and appeared in PERE’s Investing in Residential supplement, which accompanied the June 2018 issue of PERE magazine.
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