International investors’ interest in the senior residences, or senior living market is growing in Europe, but also in Portugal, a market which has «all the necessary fundamentals and dynamics to increase the number of this type of housing projects».
The words are from Hugo Santos Ferreira, executive vice-president at APPII, one of the speakers at the webinar «Senior Living in Portugal», organised this week by Associação Portuguesa de Resorts (Portuguese Resort Association) and by Savills. He stated that, in the last few years, several projects of this kind appeared within the Portuguese market, by investors who «mostly choose the Portuguese coast and the suburbs of big coastal cities». He believes the «right model for our senior living will be more connected to resorts».
He admitted that «we are still one step behind the rest of Europe, we do not yet have a clear idea of what the traditional senior homes might become in the future as new senior residence concepts. We must make the move towards this new model», because «we have all the conditions to launch more projects».
Investment in senior residences reached around 7 billion euro in Europe last year, and this is one of the segments with better prospects for European investors. This year, investment might reach a new record high, estimated Lydia Brissy, Savills International European Research Director.
According to her, «investors are increasingly more interested in this segment, especially in secondary markets». It is a segment which «guarantees portfolio diversification, long-term returns, it runs relatively in counter cycle, has a great lack of offer, is an alternate income model and has good potential to be converted if necessary». The assets have a high occupancy rate, for several years, and currently, yields in Europe are between 3.5% and 5%.
Alexandra Portugal, Savills Portugal Market Research Associate, pointed out that, in Portugal, the aging population, increase in life expectancy and the fact most senior care is still provided by families confirm the need for this type of assets: «the quality of the offer is still very poor». Savills identified only 64 senior residences in the entire country which can be considered Assisted Living, with high quality services.
«It is still an under-developed concept, which is concentrated within a small group of investors. The offer is still very much dominated by private or municipal institutions highly dependent on the State and many homes remain unfit to assist their tenants», she explained.
Horacio Blum, Savills Portugal Operational Capital Markets Associate Director, stated that «we feel private or institutional investors seek this type of projects in Portugal», and he listed 4 projects on which Savills is working on, in the Lisbon area and beyond».
Under the new senior residence concepts, «all relates to living as a community». This type of assets provides good returns» with an average stay between 5 and 7 years», highlighted Marcus Roberts, Savills International Head of European Investment & Development. He further remarked that, in Iberia, the predominant model is build-to-rent, but there is increasingly more build to sell.
Bernard Pinoteau, International Development Director at Domytis, is one of those investors. The company already has a project in Vilamoura and another in Porto, and it is focused on developing and operating residences for the Portuguese senior market.
He explained that senior residences are sought by those seeking to find «safety for their family members. Often times, these are people who lived for decades in houses that were too large, with too many stairs, in a neighbourhood that has changed too much, and end up having to move out, because their home is no longer suited for their health state. On the other hand, people live longer and alone as their close ones pass away. Families cannot support their elder in the same way they did some decades ago and often try the residence before moving».
Licensing and financing are constraints
Senior residences’ developers still find some constraints in terms of licensing and financing, not only in Portugal, but across Europe and they also find them in terms of costs.
Hugo Santos Ferreira considered that «municipal licensing and legal framing designed to improve this type of assets is a constraint to new offer. The same is true regarding co-living, municipalities are not welcoming towards these types of housing assets. And each city hall has its own regulations».
Bernard Pinoteau shared that «bureaucracy is a problem in all European countries, because licensing does not include these types of assets». And he provides as an example, in Portugal, the compulsory requirement to have a parking space within new construction, «which is useless for tenants. But in the end, there is always some flexibility».
On the hand, another setback is reconciling the prices of these residences with pensions. «It is a challenge to reconcile 5% yields and compete with housing products when there is a boom in this market, with construction costs increasing while pensions remain stagnant. It is hard to guarantee the product will be compatible with the Portuguese middle class».
Hugo Santos Ferreira also pointed out that this segment «is still seen as an alternative investment segment and still suffers from some constraints in terms of bank financing. Banks are not easily available to finance this type of investments».