The growth prospects for senior living facilities in Europe regarding quality, number, range of services, etc., are rather high. This increasing demand has created a lucrative investment opportunity that private equity firms like EQT Infrastructure are considering having great potential.
Apart from growing in value over time, property investment has evolved as an income-driven exercise, attracting new investors who look for sustained, long-term returns from senior living facilities.
The Challenges Ahead
From a long-term perspective, the major challenge remains to provide affordable, high quality senior living facilities for the elderly across Europe. There are currently four workers per pensioner in Europe, which is likely to shrink to two workers per pensioner in the next couple of decades. With the number of old-age pensioners increasing and rising healthcare prices, funding state pensions is a challenge for the European governments, most of whom are already deeply in debt.
In the foreseeable future, pensioners will have to rely on their out-of-pocket money for bearing the rental costs for accommodation, rather than depend on government doles. The current generation’s purchasing power will be much less than today’s elderly population, given the sluggish economic growth and unpaid salaries due to the COVID pandemic.
The Accelerated Ageing Population
With the whole world aging at a rapid pace, Europe is no exception. European populations age faster when compared to other countries in the world. While the increasing population is a cause of concern for the policymakers, it presents a great investment opportunity for private equity firms like EQT Infrastructure in the process of acquiring a majority stake in Colisse Group. It is one of the big four players in senior living facilities and home care services.
With supply needing to match demand, senior housing presents a strategic investment opportunity. More so, the investment opportunities in the traditional sectors are not so lucrative compared to senior living facilities that promise great returns in the long run.
Rental and Other Revenues
It is not just the rental revenue that senior living service providers are eyeing today. The diverse returns they can get from other services (housekeeping, etc.) and catering revenues, cannot be ignored as they add to a large and diversified revenue model. Most of Europe’s countries have more persons aged 65+, which has almost doubled in the last 70 years, thanks to better medical facilities leading to increased longevity.
Changing Family Structures
The increasing divorce rate in Europe (doubled between 1965 and 2019) has caused changes in the basic structure of families, leading to the need for different living arrangements.
With more individuals living in single-person households, there is a considerable housing shortage, which naturally drives the prices upwards. This is felt more intensely in the larger cities, where there is unprecedented urbanization. As of 2019, over 20 per cent of the population was aged over 65, most of whom lived alone. Most European countries have a very high proportion of 65+ population living alone than the rest of the world.
Better Purchasing Power
Today, the elderly are demanding better living conditions and expect a high degree of privacy and independence while spending the rest of their life in senior living facilities. With more spending-money in their hands, they spend part of it on leisure and save most of it for their housing expenditure. The elderly expect to live longer and have more spending money, which is not going unnoticed by private equity firms like EQT Infrastructure. Such firms prefer to park their funds in senior housing infrastructure companies as senior housing in Europe is expected to expand steadily over the next decade and more.
Summing it Up
Today, the trend is to move away from the mad competition in the highly-priced traditional assets sector to the better-yielding senior living facilities, proving to be a safe bet for equity firms.
