KristinaGeske
Adalbert Pokorski, founder and managing director, Greenwater Capital
As is the case in many other western societies, the German population is becoming increasingly older. Today, the over-60s already make up a quarter of Germany's population, and current estimates predict this share to rise to more than one third by 2050. But the senior citizens of today and tomorrow are anything but "old and rusty". On the contrary: 60 is the new 40. People aged 60 and over have never been fitter and more mobile than today. This also has an impact on their lifestyles and housing requirements. Especially those senior citizens who have sufficient financial means want to use their time, money and physical mobility to lead active lives and travel. This is why homes are sold or rented out to get rid of the burden of having to maintain the property and become more independent. Instead, the over-60s rent high-spec apartments in central or well-connected locations in A, B or C cities.
While the new apartment takes up much less space than the previous home, it still offers sufficient room and in many cases more than enough comfort by city standards. People renting such apartments appreciate neighbourhoods with a similar age and financial structure. According to a recent survey by Carestone and Ipsos on age-appropriate urban living, 74 percent of the senior citizens surveyed would like to live in a central location and in upscale or regular neighbourhoods. A key goal for them is to actively take part in social life – especially outside their own living quarters – and maintain as much independence as possible. The trend outlined above opens up opportunities for the residential property market.
Renting out housing exclusively to the 60+ target group offers tenants the advantage of being able to form a residential community comprising people with similar interests. While preserving their own independence, people can engage in a community in a way that is perceived as stimulating. Potential conflicts with younger tenants or with families having small children who have a very different rhythm of life can thus be prevented.
Neither nursing home nor hotel
Various subtypes have emerged in the retirement property asset class. Many operators of retirement properties offer serviced apartments with a wide range of services from medical care to laundry service. But the subtype discussed here is different. Many people of today's and tomorrow's 60+ generation do not want to feel like they are in a hotel or nursing home. Letting high-spec and spacious apartments without additional "add-ons" to tenants aged 60+ addresses today's senior citizen’s need to be independent. Residential buildings aimed at this target group should meet criteria different from those of serviced apartments. Key aspects include a good connection to the transport network enabling tenants to quickly reach shops, doctors or cultural events. A strong feel-good factor created by green spaces surrounding the residential property and low noise pollution from nearby road traffic contribute to successful letting. To ensure medium- to long-term occupancy, the apartments should also be designed to be barrier-free. The study by Carestone and Ipsos shows that other aspects such as sustainability or car sharing also play a role.
Focusing exclusively on the 60+ population group in residential properties offers investors numerous advantages. Senior citizens often are better off because of the assets they have accumulated during their working lives. Senior citizens aged 61 and over in the western states of Germany have an average net wealth of around 200,000 euros – a figure which generally increases even further in the following years. With retirement approaching, income is less dependent on economic cycles. For landlords, this translates into steady and fairly secure rental income. The risk of rent defaults is also low. Senior citizens no longer have to take care of major spending items such as their own house, children or a large car and are in a phase of life characterised by stability. When senior citizens move from their own home into a rented apartment, they usually stay there, thus minimising the risk of high tenant fluctuation. According to a recent survey conducted by PwC, most investors pursue a core or core plus strategy for retirement properties. Residential complexes aimed exclusively at the 60+ age group promise to generate attractive returns.
Mature but young at heart
Investing in retirement properties based on a strategy aimed at renting out high-spec and centrally located residential buildings exclusively to the 60+ age group offers investors a wealth of opportunities. It is a defensive and low-risk investment that will potentially see increasing demand in the coming decades. A homogeneous 60+ tenant base promises stable income combined with a low risk of default. It enables tenants to achieve independence and actively take part in social life.
About the Author
Adalbert Pokorski is the founder and managing director of Greenwater Capital GmbH.
