According to new figures, the Build to Rent (BTR) sector is now worth £56bn – up 60% from £35bn in 2019 – and is set to almost double in value by reaching £102bn by 2028.  But where might we see the most significant growth?

While BTR investors may think the rental market is the preserve of the younger demographic, recent analysis by Paragon Bank shows that those in the 55-64 years and 65 years and over cohorts of tenants are the fastest growing segments of the private rented sector, increasing by 118% and 93% respectively since the turn of the last decade. The number of privately rented homes in England where the homeowner is aged 55 or over has more than doubled since 2009/10 to 576,000.

In fact, the growing older population and a lack of suitable accommodation for this cohort is, I think, highly likely to drive further growth in this demographic.

Those aged 65-plus will account for almost a quarter of the population by 2043 – 17.4 million people in total – but despite this, there has been a historic undersupply of purpose-built retirement housing.     Back in 2014, such housing made up only 2.8% of all new homes under construction in the UK, while according to the Elderly Accommodation Counsel (EAC), of the 730,000 retirement homes across the UK, more than half (52%) were built or last renovated over 30 years ago.

With UK mortgage lending expected to slow sharply in 2023 due to rising mortgage rates and falling real household incomes, many more in older cohorts may decide to rent. But shifting attitudes towards retirement are also driving the change.  Figures from the English Housing Survey show that almost 1.5 million people that are 65 or over are now choosing to rent, rather than being forced to.

The end of pandemic restrictions has also meant many new retirees don’t want to just stop work and sit back – they want to enjoy a more active, flexible way of living.  Renting keeps their options open to experience different locations, move closer to family or friends and enjoy a choice of different lifestyles.  The majority of retirement rental properties are available on assured ‘lifetime’ tenancies, which give the same security of tenure as homeownership. This means renting can be a viable option, especially for those who have never rented.

Those looking to rent in later life are also often attracted to a home which not only requires less maintenance but offers lifestyle factors that modern apartment buildings can offer, such as gyms, swimming pools and communal areas.  They value being part of a social community, having shops, health facilities and good transport links all within easy reach.

Although the retirement living sector is aimed at a different age range with different healthcare and wellbeing needs, it nevertheless has strong parallels with the more established BTR sector, in that there is a shared aim of creating exciting new communities that people aspire to live in.

For the BTR investor too, older renters may be seen as a reliable source of rental income. Older tenants typically stay in a property for longer, maintain the home well and benefit from stable income, usually in the form of a pension. The Paragon report found those in the 65+ category were less likely to report any difficulty paying rent (just 18% of this cohort said they had difficulty paying rent, compared to 33% of those aged 35-64).

Investors are increasingly moving into the retirement living market.  A recent survey by Knight Frank showed some 67% of respondents of leading investors across residential investment sectors said they expect to be invested in the seniors housing rental market within the next five years, up from 31% who said they were currently investing.

Knight Frank estimate the number of private senior rental properties in the UK will increase by 114% over the next five years, from almost 5,000 currently to more than 10,500.  But even accounting for such rapid growth, Knight Frank predict seniors housing rental stock will only account for 1.3% of the total number of specialist senior housing options.  Compare that to the more mature US market where seniors rental housing is well established, accounting for 90% of total stock.

That shows that retirement living sector has clear room to grow and continue to make further inroads into the older demographic – and the opportunities could also help tide the property industry over at a time when a downturn is being predicted.

Michael Lytrides is a director at McBains, a property and construction consultancy