Study on Assisted Living highlights investment potential of €64bn
A useful new study by managed care project developer highlights the looming supply deficit in the premium segment assisted living market in Germany, which we’ve looked at in a couple of articles over the past year. The study also combines research from research group Empirica as to the rent levels that seniors will be in a position to pay over the coming years.
The study – „Versorgungssituation der 30 größten deutschen Städten mit Betreuten Wohnungen“ – highlights how 94% of German municipalities are undersupplied with assisted living facilities for senior citizens, creating an investment potential of 350,000 residential units, or €64bn.
Of the undersupply, Terragon sees an investment potential of €33bn in the four-star market for senior living.
According to Terragon’s CEO Dr. Michael Held, “The majority of people would prefer to be cared for in their own homes in their old age. And millions of these seniors can afford this serviced living.”
The research with Empirica determined that about 20% of the respondents would afford about €2,500 monthly for rent, utilities and care services. This assumes an outlay of 50% for the rental portion alone.
Dr. Walter Zorn, Terragon’s head of research, said: “Our suvey shows that households in the age group 70 and older have considerable purchasing power, since in addition to income they often have cash reserves and property assets.”
About 90% of respondents in the 61-70 year old category stated a clear wish to grow old, alone or with their partner, in their own four walls, with 60% saying they would wish an additional service element to their living arrangements i.e. managed care services. Among 71-75 year-olds the majority expressed a clear preference for home living, along with disability access and care service options.
65% of respondents assume that any apartment meeting these new age-appropriate criteria would likely be smaller than their current abodes.
The Terragon study highlights where the best potential is for investors among Germany’s 30 biggest cities and their existing managed care facilities.
The cities with the best current coverage are Frankfurt am Main and Leipzig, while bottom of the table is Mönchengladbach, with a rate of 0.5% (only one qualifying apartment per 200 elderly people).
The top 5 cities for assisted living for the over-65s are per 100 inhabitants:
Frankfurt am Main (7.7%)
Leipzig (7.6%)
Stuttgart (5.1%)
Hamburg (4.8%)
Hannover (4.6%)
Berlin (3.6%) lies in twelfth place, while Duisburg (0.9%), Gelsenkirchen (0.7%) and Mönchengladbach (0.5%) prop up the table. The average rate of provision of managed care across the top 30 cities is 3.3%.
The best coverage is in towns and cities with more than 500,000 inhabitants, with a rate of 4% for the over-65’s. This rate falls to about 1.3% in towns with less than 20,000 inhabitants – although there are exceptions here, with towns exhibiting both the lowest and the highest rate in all Germany.
The current dominant housing model is a small building with less than 30 apartments, offering only a limited degree of services. Around 50% of the total of 7,000 houses surveyed fall into this category. A further 36% of the houses surveyed have less than 80 units.
“Very few senior citizens find anything appropriate near their current locality – at least not that which would interest them and which they could afford”, said Zorn.
Terragon has analysed the market for four-star service within the overall category of assisted living housing, and puts it at about 5% of the market for self-financing over-70 year-olds. This category would indicate a potential of about 2m households, of which 5% could afford the premium rates of €1,800 upwards monthly, resulting in about 100,000 new service apartments, or an investment potential of €33bn for the upper end of the market.
According to Terragon, there is further investment potential of €18bn for 100,000 service apartments in the price category of €900 monthly, and 150,000 new apartments (for €13.5bn) in basic quality for €600 monthly. The total potential for self-financing apartments for over-70 year-olds is put by Terragon at 350,000 units, for an investment volume of €64bn.
Terragon itself has been around for 20 years, and has become increasingly specialized on project development in the care sector, focused on apartments with disability access. It has developed more than 2,000 residential units for elderlies. It currently has about €340m of projects in development, and a pipeline of project for €150m to €200m for the next few years, at an average individual project volume of between €40m and €60m.
Through a joint venture signed last September with the SAX Group, Terragon now has the firepower to invest €500m to €600m over the next three to five years in developments. It has also recently suggested that it might issue its first corporate bond this year, as further financing support.