Developers eager to fill the demand for senior housing created by an aging U.S. population are facing a new and unexpected challenge in the form of rapidly advancing technologies that allow seniors to stay in their homes longer.
It’s called “aging in place,” and a host of disruptors have set their sights on this growing market.
It’s called “aging in place,” and a host of disruptors have set their sights on this growing market as a participants across the health care ecosystem look to manage costs and improve outcomes. The Wall Street Journal recently reported that in 2019 alone, investors will pour about $1 billion into the companies serving this sector – about double the amount from three years ago.
There is no denying it; America is aging and as populations change so do their housing needs. People reach a point where they need to move into an assisted or independent living facility. Historically, the supply of such facilities has generally lagged the demand and created favorable occupancy rates and rents for senior living developers, operators and investors.
This mismatch between supply and demand has helped increase rents by 3.75% per year since the end of the global financial crisis in June 2009. From the real estate perspective, higher home prices and transaction volume during the recovery after the Great Recession have helped adult children sell their parents’ homes and finance independent or assisted living care. But since the end of 2015, occupancy rates have begun to decline, driven by the increase in supply entering the market.
The increasing availability of new technologies and the plethora of firms eager to offer them could constrain demand for senior living even further. Front and center in this technology push is Best Buy. The big box retailer, buffeted for years by online rivals, sees an opportunity to leverage its human capital with its technical knowhow. It is training its Geek Squad workforce to consult with seniors about technology and deploy the solutions that fit their lives. Products like sensors, cameras and artificial intelligence assistants can help seniors stay safe at home while providing their caregivers, primarily their adult children, peace of mind.
While Best Buy and other companies are targeting the services to the seniors and their caregivers, the customers are often the commercial and government health insurance payers. The value proposition to a payer is simple: they can pay a small sum for technology that can keep seniors at home for “free” for longer, and delay the move to much more expensive senior housing. In fact, Best Buy executives noted at their recent investor day that they believe their systems can deliver 16% to 25% cost savings of a $55 billion addressable insurance market.
For developers of senior housing it makes for a challenge to the business that was hard to envision even a few years ago. So what can senior living developers, investors and operators do? Consider three ideas:
- Focus on creating a community. Technology can keep seniors in their homes longer but it is still a poor substitute for personal, human interaction. Developers and operators can create communities where seniors will go to belong, not simply to stay safe or healthy.
- Focus on multi-generational master-planned communities. Seniors don’t want to live in “graveyard-ish” communities and are increasingly seeking places where they can live near families and kids but have amenities for senior-exclusive activities. Seniors age “slower” in multi-generational communities versus senior only communities.
- Focus on providing opportunities for seniors to age-in-place. Developers can construct units with an aging tenant in mind — larger bathrooms, easy-open windows and single story floor plan layouts can help seniors stay in their housing longer.