Article | Intelligent Investment
Vacant seniors living property: Australia’s high demand asset class with growth potential
The potential of the Seniors Living sector is being buoyed by an ageing population and undersupply in retirement and aged care offerings.
July 18, 2023
Australia’s Seniors Living sector has long been one of the nation’s most subjective market segments. And with a rapidly ageing population, clear current and forecast undersupply in both retirement and aged care offerings, this is now the case more than ever.
While increased funding for the Aged Care segment of the market seems inescapable to support its long-term sustainability, when this will occur remains unknown. On the alternative side of the equation, the Retirement Village and Retirement Living industries are mostly flourishing.
All the while, a landscape of rising construction costs means new developments have been few and far between with many operators freezing their new project pipeline and opting for refurbishment or extension opportunities via existing homes or the acquisition of vacant assets. In some instances, operators are also now considering leasehold assets in partnerships with private developers and investors to build operational scale and overcome current development headwinds.
Increased freehold renovation, repositioning and extension interest given the aforementioned leasing trends is also driving creative architectural design and expansion projects.
As a biproduct, the team has seen a record number of former Seniors Living properties being transacted over the past 24 months. CBRE is forecasting this record volume of sales to be surpassed again by the conclusion of 2023, with CBRE tracking a notable increases in sales activity across Queensland and New South Wales. This same trend has been witnessed across Victoria since 2020.
Recently Transacted Vacant Seniors Living Property
Over the past 36 months numerous vacant Aged Care and Retirement homes have been transacted in Victoria and the trajectory of opportunities is only heading north. Depending upon the age, quality and maintenance history of the improvements, many of these opportunities have transacted at below replacement cost with notable purchases focusing on Aged Care, Accommodation, Healthcare conversion and Disability Services.
Active & Recently Transacted Vacant Aged Care & Seniors Living Assets (National)
Current vacant Seniors Living opportunity - Tanah Merah Village (QLD)
Tanah Merah Village is the largest and highest quality vacant Retirement or Aged Care asset to be offered to market in Australia.
Featuring 124 modern apartments constructed between 2008-2018 across both Class 3 and 9A buildings, Tanah Merah features an average unit size exceeding 50sqm. Spread across a mixture of single and double units, sizing is well above industry expectations, with an expected sale in Q3.
Aged Care construction costs
An important question to address is why refurbishment or repurposing is often the highest and best use for these types of properties.
In many cases, Residential Aged Care and Retirement operators adhere to a strict maintenance and refurbishment schedule. This is primarily for residential quality of life, however it also ties in with higher levels of government funding. For these reasons, refurbishment and extensions of these homes is often far less substantial than a comparative new build.
Aged Care & Retirement construction costs are substantial, which creates an incredibly high barrier for developments to enter the sector. From a developer’s perspective, projects are rarely feasible, which is why the majority of the country’s Residential Aged Care Facilities are owner occupied.
Construction costs can range anywhere from $300,000 per bed to $400,000 plus. Development compliance for these homes is strict and all must be built to a Class 9C or Class 3 standard.
Transactional Activity (YTD)
A snapshot of the increased volumes of transactional activity can be seen below. At the time of this update (mid-2023) we have already seen multiple sales with further assets forthcoming in H2 this year.
The CBRE Australian Healthcare & Social Infrastructure team has expertise in the sale of both leased and vacant seniors living property. To be informed of future opportunities within this space or to discuss the current market trends, please contact a member of the CBRE team.
While increased funding for the Aged Care segment of the market seems inescapable to support its long-term sustainability, when this will occur remains unknown. On the alternative side of the equation, the Retirement Village and Retirement Living industries are mostly flourishing.
All the while, a landscape of rising construction costs means new developments have been few and far between with many operators freezing their new project pipeline and opting for refurbishment or extension opportunities via existing homes or the acquisition of vacant assets. In some instances, operators are also now considering leasehold assets in partnerships with private developers and investors to build operational scale and overcome current development headwinds.
Increased freehold renovation, repositioning and extension interest given the aforementioned leasing trends is also driving creative architectural design and expansion projects.
As a biproduct, the team has seen a record number of former Seniors Living properties being transacted over the past 24 months. CBRE is forecasting this record volume of sales to be surpassed again by the conclusion of 2023, with CBRE tracking a notable increases in sales activity across Queensland and New South Wales. This same trend has been witnessed across Victoria since 2020.
Recently Transacted Vacant Seniors Living Property
Over the past 36 months numerous vacant Aged Care and Retirement homes have been transacted in Victoria and the trajectory of opportunities is only heading north. Depending upon the age, quality and maintenance history of the improvements, many of these opportunities have transacted at below replacement cost with notable purchases focusing on Aged Care, Accommodation, Healthcare conversion and Disability Services.
Active & Recently Transacted Vacant Aged Care & Seniors Living Assets (National)
Current vacant Seniors Living opportunity - Tanah Merah Village (QLD)
Tanah Merah Village is the largest and highest quality vacant Retirement or Aged Care asset to be offered to market in Australia.
Featuring 124 modern apartments constructed between 2008-2018 across both Class 3 and 9A buildings, Tanah Merah features an average unit size exceeding 50sqm. Spread across a mixture of single and double units, sizing is well above industry expectations, with an expected sale in Q3.
Aged Care construction costs
An important question to address is why refurbishment or repurposing is often the highest and best use for these types of properties.
In many cases, Residential Aged Care and Retirement operators adhere to a strict maintenance and refurbishment schedule. This is primarily for residential quality of life, however it also ties in with higher levels of government funding. For these reasons, refurbishment and extensions of these homes is often far less substantial than a comparative new build.
Aged Care & Retirement construction costs are substantial, which creates an incredibly high barrier for developments to enter the sector. From a developer’s perspective, projects are rarely feasible, which is why the majority of the country’s Residential Aged Care Facilities are owner occupied.
Construction costs can range anywhere from $300,000 per bed to $400,000 plus. Development compliance for these homes is strict and all must be built to a Class 9C or Class 3 standard.
Transactional Activity (YTD)
A snapshot of the increased volumes of transactional activity can be seen below. At the time of this update (mid-2023) we have already seen multiple sales with further assets forthcoming in H2 this year.
The CBRE Australian Healthcare & Social Infrastructure team has expertise in the sale of both leased and vacant seniors living property. To be informed of future opportunities within this space or to discuss the current market trends, please contact a member of the CBRE team.
Get in Touch
Jimmy Tat
Director, Healthcare & Social Infrastructure, Capital Markets, Australia
Marcello Caspani-Muto
Associate Director, Healthcare & Social Infrastructure, Capital Markets, Australia
Sandro Peluso
Director, Healthcare & Social Infrastructure, Capital Markets, Australia
