21 May 2021

People aged 65 and older comprise around 15% of New Zealand’s population: a figure expected to double over the next 20 years as more of the wealthy baby boomer cohort begin their retirement.

End-user motivation for moving into retirement villages has been driven largely by certainty of living costs, companionship, downsizing, security and transferring obligations for maintenance onto operators.

These factors have been the catalyst for strong growth in the retirement village sector, with the number of retirement units more than doubling from 20,000 in 2008 to around 42,000 as of May 2021, comfortably outstripping growth in the number of care beds over the same period.

In addition to a trailblazing group of private entrepreneurs who established New Zealand’s first retirement villages in the 1980s, market growth has been facilitated by the Retirement Villages Act 2003, which provides for consumer protection legislation and protects the elderly from being taken advantage of financially.

This has created an environment in which operators are committed to providing a secure, comfortable, and well-amenitised experience for the resident and a product that meets the market’s needs as a priority. Happy residents mean profits follow.

As retirement villages require substantial upfront capital, are management intensive businesses and are subject to relatively higher regulatory controls, most investors tend to shy away from the sector, preferring relatively less complex sectors such as industrial.

As of 2021 there are six listed retirement living operators in New Zealand along with a few large unlisted players, each of which have substantial portfolios. These portfolios have unique characteristics in terms of their geographical location, scale, product mix and offering.

Other seasoned operators include high net worth entrepreneurs who have sizable portfolios of intergenerational assets that have been passed through their families over the years, and smaller owner-operators with one or two villages.

One of the larger transactions to occur recently included Asia Pacific Village Group Limited, an entity owned by Sweden’s EQT Infrastructure IV fund who acquired all Metlifecare shares for NZD 6.00 per share in late 2020 in what was an NZD 1.3 billion transaction. The takeover offer was approved at a shareholder vote held on 2 October 2020, resulting in Metlifecare being removed from the NZX on 3 November 2020. The Metlifecare portfolio was first established in 1986 and was publicly listed in 1994 trading as Metropolitan Lifecare Group Limited until a name change in 1998.

Recent years have seen a flight to the regions as city-based retirees capitalise on rising residential prices by selling their homes and purchasing units in regional retirement villages. While an average house in central Auckland can fetch around NZD 1.5 million, units in a regional retirement village in, say, Tauranga are available for just NZD 800,000.

Village clustering, whereby a high concentration of retirement villages is developed within a micro catchment, is another key theme. This approach ensures villages complement each other in terms of size, product offering and price point, and attract residents from outside the immediate catchment.

This opinion piece is an extract from the latest article in CBRE’s Valued Insights series, which provides an overview of Asia Pacific’s leading senior housing markets and discusses the latest developments and trends through the lens of CBRE’s valuation experts.