The Integrated Retirement Community model and the foundations of the wider retirement living sector in the UK are compelling, says Lex Cumber, director of business development at Sherpa UK.
The headline case for the Integrated Retirement Community sector is overwhelming: the market is vast with 9.1 million people aged over 70 in England alone; the product is thin on the ground; and penetration rates are low when compared to similar jurisdictions such as the US or New Zealand. This type of housing model is an open goal business opportunity.
There is an anomaly sitting at the heart of this universe, however, like a physics bending black hole. The enigma being ‘challenging’ sales rates and, by extension, poor profitability. It’s a conundrum.
Long-term experience in the sector – gained by working for developers of retirement communities, for ARCO, the sector’s trade body, and currently for Sherpa, a company providing ‘Senior Housing’ specific tech platforms to over 6,000 communities in the US and a growing family of operators in the UK – gives me the insight to consider this riddle from a variety of perspectives. The conclusion: there are a range of fundamentals that need to be addressed with honesty and humility if we are to build a sustainable UK industry that delivers all it might for customers, shareholders, and the wellbeing of society.
The first problem is an overly dominant ‘developer mindset’. Cliff Cook the CEO of the highly successful (New Zealand and UK based) LifeCare residencies once said, ‘What you have to understand is that this is a service offer, not a property transaction.’
Yet for most of our industry, retirement living is primarily a property transaction. And the focus on development profit is understandable given the decades of profits made selling homes during the cheap money, low supply environment that fuelled house price inflation.
To be sustainable, however, retirement housing must become a service offering rather than just a property play.
Operators that focus on development profit as opposed to operating value are exposed to falling prices over the medium to the long term. Worse still, their customers end up carrying the can of poor resale values and eroded assets and services. This approach damages the whole industry.
The second problem is the lack of a professional and sector-specific sales culture. I’m not saying that salespeople in the UK sector are unprofessional (far from it), but I am saying that an estate agent mindset, focused on the transaction rather than the customer, currently dominates the market. The acknowledgement that it is bloody difficult to sell a product that is considered by nearly all customers as a regressive move is almost nowhere to be heard.
If you visit large scale successful operators in countries like the US or Canada, even fully occupied communities have substantial sales teams that work seven days a week, 365 days a year. There is a ‘we are here to serve the customer’ mindset in North America, something difficult to find in the UK because it does not have an ingrained customer service culture.
Want to visit a community with your grandchildren on a Sunday or a Bank Holiday? Good luck with that, this is Britain.
The third challenge is price, it’s expensive. Notwithstanding the subsidised Housing Association model that provides mixed tenure communities, a model that in many cases is astoundingly successful and desirable, the private sector’s understanding of ‘mid-market’ pricing in the Integrated Retirement Community model (24-hour care, food & beverage, good communal facilities) is considerably above the average price of a UK home (about £285,000).
Land is expensive, planning is a game of roulette and construction costs only move in one direction, which means ‘buying’ a product is always going to be relatively expensive. Much of our industry looks at this cost issue through the wrong end of the telescope, however, where the objectives of finance shape the product, not customer needs and localism. It’s topsy turvy. It leads to the wrong product being developed in the wrong place at the wrong, or at least at a ‘highly ambitious’, price point.
Medium sized communities of less than 200 units that take five years to fill kills profitability.
Despite the systemic challenges, there are some outstanding operators out there. Rental is working, product designed and built to a locally realistic price point is selling and, best of all, most of the communities I visit are joyous places with happy staff and happy residents. This is something worth fighting for.
Over the next 20 years, I genuinely want to see a million people living in Integrated Retirement Communities and other senior housing types, but for this to happen the industry needs to be honest with itself. The sector’s challenges can be successfully addressed but only after it admits they exist.