Retirement village supply shortfall looming - report

Monday, 2 September 2024

The growing number of retirement village units is driven by continued demand from the country’s aging population.

New Zealand will be short nearly 8400 retirement village units by 2033 if the sector does not boost development to keep up with demand, a commercial real estate firm says.

Retirement village development visibly increased over the last decade, but more recently providers have slowed development plans in response to softer economic conditions.

Now, JLL has released its annual Retirement Villages Market Review, and it found there were 41,111 units across 470 villages, housing approximately 53,444 residents in December 2023.

It also showed that 2298 units were completed over the year, above the five-year average growth in units of 1913, and the 10-year average of 1696 units.

JLL head of research Gavin Read said that marked a significant increase from previous years, driven by continued demand from the country’s aging population.

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While the rate of increase in the 75-plus age bracket population was slowing down, it was still increasing in absolute terms, the report showed.

Between 2018 and 2023 it increased by 73,350 people, and between 2043 and 2048 it was expected to rise by 68,910 people.

Read said the question was how many retirement village units would be needed to meet demand from those people.

A lot would depend on market penetration rates, which currently sat at 14%, he said. “If that rate dropped back demand would be less, but if it went up there would be more demand.”

But the report estimated demand for retirement accommodation would reach 112,624 people by 2048.

A significant increase in the number of retirement village units and aged care beds would be needed to meet that demand, he said.

“Now, if you look at history in this space, you would say the retirement village providers have developed enough to meet the market.

“Given the number of new units developed over the last five years was an average of 1913 per annum, the industry should be able to meet demand of 59,652 units if it continues to develop at its current rate.”

JLL’s Gavin Read says operators need to scale up their developments to avoid a potential supply shortfall.

But the current development pipeline did not suggest plans to develop 1913 units per year, he said.

There were currently 22,281 units in the development pipeline across both existing and new villages, and of those 10,174 were under construction, according to the report.

That left JLL anticipating a supply shortage of 8367 units by 2033, and 23,302 units by 2048.

On top of the current development pipeline, an additional 932 units needed to be built each year for the next 25 years for the industry to meet its demand by 2048, the report said.

For Read, the report findings underscored the importance of strategic planning and development to ensure that future demand could be met.

'There is a clear requirement for operators to scale up their developments, either in their existing villages or in newer locations, to avoid a potential supply shortfall in the coming years.'

Given the land holdings of the bigger retirement village operators, they always had a lever to pull to boost their pipeline, he said.

High end luxury retirement villages, such as Oceania’s The Helier in Auckland, are on the rise.

“They are essentially developers, and as with other developers their activity has eased off due to high lending and construction costs, and the softer residential housing market.

“But when these factors and broader economic conditions start to improve, they are likely to increase development activity.”

The report found Auckland remained the region with the highest concentration of villages and residents, although market penetration in Bay of Plenty was high, and that luxury retirement villages were on the rise.

It also said the sector continued to be dominated by the “Big 6” (Ryman, Metlifecare, Summerset, Bupa, Arvida, and Oceania), which account for 46% of all villages and 67% of total units.

Read flagged the integration of aged care beds into villages as an issue to watch, as the report found that while the Big 6 dominated units, they only accounted for 36% of aged care beds.

“This highlights the importance of smaller providers in the aged care sector and the ongoing challenges in meeting the care needs of New Zealand’s elderly population.”

Aged Care Association chief executive Tracey Martin said it was critical there was incentive for retirement village operators to invest in aged care beds.

“There will be a shortage of aged care beds in the short, medium and long terms, unless the model is redesigned.

“This is particularly true for non-Big 6 operators, as they have little incentive to invest in their aged care beds, whether it is an upgrade, an extension to existing facilities, or a new build.”