Not shy and retiring
Total Property - Issue 7 2019
The aged-care and retirement village property sector is expanding and evolving to meet rising demand and expectations. Retirement villages are now a significant asset class with relatively predictable and growing demand curves.
Our population aged 75 and over is forecast to triple in 50 years and this is challenging operators to reassess offerings. Research for the Retirement Villages Association found villages make a crucial contribution to housing supply and developments are expected to keep pace with demand. Construction in 2017 added around $480 million to GDP.
The low-interest-rate environment favours large, capital-intensive projects. But a village developer/operator has to fund at a higher level than a residential developer as no progress payments are made, with residents only paying for their villa/unit the day they move in.
Developer Qestral Corporation has a pipeline of new-generation projects. Its shareholders include Ryman Healthcare co-founder John Ryder, NZ Aged Care Association chair Simon O’Dowd, O'Dowd’s brother Jeremy and private equity firm Direct Capital.
It is completing development of Alpine View Village in Burwood, Christchurch; recently opened Burlington Village in Redwood, Christchurch; has land to build Coastal View Village in Nelson; has further sites in Hamilton and Christchurch and is negotiating for one in Northland.
It owns more than 70 hectares to build over 1,000 houses, 250 apartments and 450 specialised care suites. This pipeline equates to about $750 million.
Ryder says Qestral benefits from being a relatively small private company with industry-leading experience and a blank canvas to develop concepts.
Sector changes have brought larger rooms, a greater range of facilities and new technology.
Qestral targets the upper market and, with current sites over 12 hectares, its villages offer generous space, discreet layouts, bold architecture and a ‘community’ environment.
Sites acquired are in major cities with reasonable real estate prices. “Qestral has reviewed the Auckland market and will go there in due course. However, the type of sites we seek will require a large balance sheet – which is on its way.
“If you draw a ring around most expanding cities, are content to bring the market to you rather than battle for expensive inner city sites and are prepared to be patient to buy during market corrections, there will always be land in population-sparse New Zealand.”
Ryder says Qestral enjoys the competitive tender process and the construction sector appreciates the consistency and low-risk building environment of retirement villages.
Julian Cook, chief executive officer of Summerset Group Holdings, says its development continues apace and expects to lift completion rates from around 500 retirement units per annum to over 600 in the next few years.
Over the past 18 months, Summerset has acquired sites in urban fringe areas, popular retirement destinations and prospering regional centres. Purchases include Northland and Hawke’s Bay and it is seeking sites in Auckland, Wellington and Christchurch.
“In the current climate of high commercial build costs, our ‘broad acre’ regional sites – those sized six to nine hectares with predominately single-level villas – are performing best from a financial return, financial risk, and demand perspective.
“A large land bank also serves to reduce overall delivery risk should any particular site be delayed through the course of resource consenting.”
Cook says the bigger players are lifting build rates and new entrants are increasing competition.
Summerset continually benchmarks offerings against the market and is known for innovation.
“We were the first nationwide operator to put cafes in village, among the first to offer government-subsidised rest home care in a one-bedroom apartment and are now building our memory care centres for people living with dementia around the same concept.”
Cook believes land constraints in major centres will drive demand for more vertical villages – growing up, not out.
Chief executive officer for Arvida Group, Bill McDonald, says the sector is in a prolonged growth phase. Arvida is seeing strong demand and expects this to continue as long as it delivers a relevant product. Growing rapidly to have assets of over $1.8 billion, Arvida says its success is underpinned in large part by quality buildings and locations.
With recent acquisitions in Tauranga and Queenstown, McDonald considers Queenstown particularly interesting. “It’s an emerging destination for retirement living and will continue to become more attractive as adjacent offerings, such as a private hospital, are developed.
“Our challenge lies in managing the costs of developing the village as land in these areas is expensive, hence we have internalised more of our construction activities to achieve that control and better manage the delivery of the overall product.”
Arvida likes to develop “broad acre” villages where single-level buildings are spread over about 10 hectares, with plenty of green areas and each home having outdoor space. It has 32 villages from Auckland to Timaru.
Read more market insights from Total Property
Subscribe to receive the latest commercial news and insights from Bayleys Total Property