The $150 Billion Senior Living Opportunity

This CBRE Talking Property episode examines Australia's senior living sector, valued at approximately $150 billion, with a focus on retirement living as the largest and most under-institutionalized component. The sector encompasses retirement living, aged care, and land assets, with ownership highly fragmented across numerous small operators.

Dan Meersck from Aware Super Property discusses the investment perspective, noting that Aware has committed $2.4 billion across two major positions: 100% ownership of Oak Tree Retirement Living and 75% stake in Keaton. He highlights that investor concerns have evolved beyond stigma around deferred management fees to focus on scale acquisition, optimal entry points, and roll-up strategies. The sector's under-institutionalization stems from less evolved regulation and operations compared to other real estate sectors, but recent changes in regulatory frameworks and capital inflows are creating consolidation opportunities.

Paul Martin, acting CEO of Keaton, emphasizes that retirement living is fundamentally a human service business built on physical assets. He distinguishes retirement living from both aged care (which is government-funded and regulated) and build-to-rent over-55s communities, positioning retirement living as independent living with community services and amenities but not aged care provision. Keaton has diversified its contract offerings beyond traditional deferred management fees to include prepaid and bond arrangements, responding to evolving customer expectations and financial circumstances.

The demographic case is compelling: Australia's population aged over 65 will rise from 18% today to almost 25% within 40 years. Supply-demand dynamics are favorable, with 27,000 residents on waitlists, 80% seeking properties under $1 million, creating challenges for new development given current construction costs. This supply constraint benefits existing operators with established portfolios.

From an operational perspective, alpha generation occurs through strategic bolt-ons, portfolio acquisitions, and selective divestitures. Keaton is selling 11 villages across three states through 2027 to consolidate geographic clusters and redeploy capital into premium market locations and redevelopments. Construction cost pressures have shifted development strategy toward higher-priced markets where feasibility metrics remain viable.

Both speakers emphasize the sector's evolution: contract models will diversify, the next generation of residents may have different financial capabilities and expectations, and the sector needs greater transparency and advocacy as a housing solution. Keaton reports 90% positive health and well-being satisfaction scores and over 25% of sales from resident referrals, demonstrating the value of operational excellence. Consolidation opportunities remain significant, with recent major transactions including Living Companies' acquisition of Aveo and Aware Super's acquisition of remaining Keaton shares. The sector is positioned to attract private equity and alternative capital, similar to aged care dynamics.