Land Lease Sector Tipped to Overtake Retirement Living by 2031

Land lease cannot be ignored and is on target to outstrip the wider retirement sector in just a few years. That’s according to Colliers director of advisory services for healthcare and retirement living Bruce Message who dropped something of a bombshell at The Urban Developer ’s Retirement and Aged Care Summit at Brisbane’s Calile Hotel on September 3. “We can’t ignore the land lease community model, which is gaining significant demand from consumers and is attracting major investment inflows,” Message said. “We expect the land lease community sector will overtake the retirement living sector in terms of [home] numbers within the next five years.” It comes as Eureka Group this week announced to the ASX that it had acquired four mixed-use (including land lease and tourism) communities, plus two land lease sites in NSW. ▲ Ingenia’s The Grange at Morisset in New South Wales was included in the deal with Eureka. Eureka picked up the communities, which total 952 lots, for $123.8 million from Ingenia. Eureka chief executive Simon Owen said that the acquisition was “transformational” for the senior living asset owner, “reinforcing Eureka’s status as the only ASX listed pure-play residential rental specialist”. Operating in the land lease space The land lease sector comprises about 65,000 homes, Message said, and the penetration rate for the over 65s in land lease communities was about 3.8 per cent. This increases to 7.5 to 8 per cent penetration for the 75-plus cohort—so there is a lot of headroom to grow. “Land lease communities really came from nowhere in the past five years to have massive growth, and will, in terms of [home] numbers, overtake the retirement living sector,” Message said. And Message predicted that other areas of the industry, namely not-for-profits operating in aged care and retirement living, will start looking at land lease communities, marking shifts in other areas. “You’ll [also] see the traditional retirement living operators move into aged care, and then the land lease communities will [start to realise they are or need to] provide a care model,” Message said. ▲ Colliers’ director of advisory services for healthcare and retirement living, Bruce Message: Land lease will only get stronger. “[They will ask:] how do we manage our residents when their acuity increases and we have to move them into aged care? So I believe that they will eventually go into some level of aged care.” Land lease communities have also proven more nimble across modern methods of construction such as modular. “I’m not seeing a lot [of MMC] apart from the land lease community, where there’s more innovation. In terms of traditional retirement living, I’m not seeing that at all.” Opportunities for land lease growth One operator investing in land lease is Gannon Lifestyle Communities, an Adelaide-based company backed by the Gannon family. It has completed 700 homes across four developments and has 255 due to complete at Tamworth, NSW, as well as a land lease community under way at Moonta Bay on SA’s Yorke Peninsula, Gannon Lifestyle Communities chief executive Jane Monk said. “We made a decision some years ago to consider land lease as part of our broader portfolio,” Monk said. “That’s not to say that we’re not satisfied with retirement villages. “[But] we really liked the investment opportunity of effectively creating a rent roll and therefore receiving recurrent income during the development phase. So, we’re about 50 per cent of the way through [its latest Victor Harbour Project on South Australia’s Fleurieu Peninsula]. ▲ Gannon Lifestyle Communities chief executive Jane Monk: Land lease allows developers to hit a more affordable price point. “We’re already returning an operating surplus to that project alongside the development profit that we’re making on it. “So we really liked how it smoothed both the income and the returns across the portfolio.” While there is considerable cash in the downsizer market for an upscale product when buyers reach retirement age, land lease provides an opportunity to target more affordable segments, which Gannon takes into account given its geographic markets, Monk said. “We position ourselves at a different point in the market that suits the Adelaide and the regional South Australia market,” she said. “So our maximum selling price for a home in land lease is probably around $550,000, but we still charge the same amount of site fees that you would on a more expensive development as well. “[That means that] from the rent point of view, there’s certainly consistency. Making it easy for people to make a move into the community at the appropriate price point compared to the moving house price in the area that you’re targeting is important.” Developing retirement for the future But as with all living sectors, there are challenges. Message laid out the problem, which many developers and operators working at the coal face of retirement and aged care already know. Around 225,000 operating care and retirement facilities have between 95 and 96 per cent occupancy—and the demand pressure continues to grow. Australians aged 50-plus are about 35 per cent of the population, or 9.5 million people. That demographic is expected to account for 59 per cent of population growth to 2046. “The industry and the operators need to really think long and hard about what the future consumer will require for their housing and how affordable it will be,” Message said. And with the likes of The Living Company founder Stephen Gaitanos declaring his interest in the land lease space at the summit, it’s a matter of when, not if, land lease begins to play a bigger role in the provision of housing for older Australians.

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