Business property advisor Knight Frank has published its ‘Seniors housing annual review 2022-24’, which contains positive indicators following on from the pandemic.

The report aims to provide operators, developers, investors and other stakeholders with sector insight, both as it is currently stands and how it has progressed over time.

Knight Frank has surveyed IRC operators, enquiring about their daily operations, performance and resident profiles of 115 schemes managing 13,000 units (110 units per scheme), and housing more than 17,500 residents.

In total, 32% of schemes analysed were affordable and 68% were private, and geographically spread across the country, with 30% in rural and 70% in urban locations.

The findings suggest the sector continues to evolve and transform, with more flexibility and choice than ever before. Rental has been increasing in popularity and among private IRC operators, deferred management fees (DMF) options are also on the rise.

Although there are a number of challenges, there are more reasons to be positive about the sector given strong fundamentals and increasing maturity of operators, as reflected in a number of key performance indicators presented in the report.

Once again, this year’s report provides further evidence of the resilience of the seniors housing market, as well as the long-term drivers for growth, including focusing on customers and responding to changing market conditions. This reflected in the tenures being offered and the widening choice on DMF structures.

Even with challenges such as build cost inflation, the leading operators continue to grow their platforms, creating communities that generate long-term income streams that offer a hedge against inflation.

Larger DMFs allow more cost risk to be shared between income sensitive tenants and investors creating long-term alignment. Rental tenure allows increased flexibility and choice to tenants whilst widening the addressable market.

Sales volumes in 2023 to date appear to be down around 20% year-on-year (albeit with the time delay on Land Registry a comprehensive dataset is still being analysed).

Conversely rental volumes have increased in 2023 year-on-year. And pricing volatility is low with operators largely holding headline pricing. These dynamics are more robust than the wider residential market, where prices increased more post-Covid and hence are reducing along with sales volumes in the current higher rate environment.

There is appetite in debt markets from a growing range of lenders to fund seniors housing schemes. Prime yields sit outside the rest of the living sectors, making leverage more accretive. And value looks attractive: high inflation over the last two years means real values remain down.

Looking forward to next year, inflation will remain sticky which will continue to support rental growth. If the current Older People’s Housing Taskforce delivers next year on its brief of providing policy change to increase supply, then the sector will have a tailwind through 2024 and beyond which will accelerate investment.

Overall, Knight Frank says this year’s survey results are a positive indicator about the position of the sector following on from the pandemic and moving through economic headwinds.

Read the full report here