Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 166

Seniors living is becoming a mainstream investment

Australia’s population is ageing. The number of people over 65 has more than doubled in 20 years from 1.6 million in 1995 to 3.6 million in 2015, and is forecast to reach 5.6 million by 2030. The seniors living industry is also undergoing significant change due to this ageing population, industry consolidation, changing expectations, and a shortage of quality accommodation.

The seniors living industry has three key accommodation components:

  • manufactured housing estates (MHEs) – operate under a ground lease agreement in which the resident owns the relocatable home and leases the right to occupy the site from the village owner or operator
  • retirement living communities and villages – facilities comprising apartments or villas in which the residents do not own the unit but live in it subject to a lease or licence to occupy. Retirement villages typically operate under a deferred management fee (DMF) structure
  • aged care – a special-purpose facility that provides accommodation and other support ranging from assistance with day-to-day living to intensive nursing care to frail and aged residents.

Increasing degrees of care

Older Australians are moving along the spectrum of seniors housing, from independent living at home, to accessing low-level support services in a retirement living community or manufactured housing estate, to ongoing nursing care in a residential aged care facility (as shown in Figure 1). There is also a growing move toward integrated facilities, offering a ‘continuum of care’, through the integration of an aged care facility and/or provision of home care services within, or adjacent to, an MHE or retirement living community.

Figure 1: Continuum of care for seniors living

Continuum of care for seniors living

Continuum of care for seniors living

 

Source: Folkestone and the Productivity Commission. Click to enlarge.

Industry consolidation

Ownership across all three components of the seniors living industry is highly fragmented and the quality of facilities varies widely.

In the retirement living sector, the top six operators represent only 29% of the number of operators in the sector, according to Colliers International. However, approximately 60% of the facilities are currently accounted for by the for-profit operators such as Lend Lease, AVEO, Stockland, Retire Australia, Living Choice, and Australian Unity and 40% by the not-for-profit operators.

The aged care sector is a similar story. As at June 2014, approximately 63% of operators operated a single facility, accounting for 24% of all operational aged care places, while 29% operated between two and six facilities. Conversely, large providers with more than 20 homes comprised only 2% of all providers but 22% of operational places.

Increased participation from the private sector and institutional investors is leading the move from a boutique cottage industry to one of growing sophistication and scale. A flurry of ASX listings in recent years by both specialist aged care operators such as Japara, Regis and Estia, and listed A-REITs such as Gateway Lifestyles, Ingenia, and Lifestyle Communities, have shone the spotlight on the sector. AVEO (the former FKP) is transforming into a specialist retirement and aged care operator. We expect more opportunities for investors to access the sector through the unlisted space via both private equity and unlisted real estate funds.

Large numbers of affluent baby boomers are expected to bolster the sector’s numbers over the next 10-20 years. These customers will pay more for facilities and services but they will also expect high standards. There will be a greater emphasis on quality service, brand recognition and the reputation of service providers.

The Federal Government wants more people to age in their own home, with a commitment to increase funding for home care packages. MHEs and retirement villages will offer additional services including home care packages within their communities as a way to enhance their overall profitability.

Shortage of quality accommodation

There are approximately 2,300 retirement living communities and villages in Australia, comprising more than 140,000 dwellings and housing approximately 184,000 people, according to the PwC/Property Council Retirement Census for 2015. The average age of a retirement living facility is 23 years, with many of the earlier ones heading towards obsolescence. Folkestone estimates that if the penetration rate of retirement living communities and villages was to increase from just under 6% to 7.5% of the over 65s population, the population of retirement living facilities would more than double to 419,000 by 2030 (see Figure 2). If penetration rates were to increase to 10% (in the US it’s currently around 12%), approximately 560,000 people would be living in retirement living communities by 2030.

Figure 2: Implied demand, retirement living community residents: 2015 – 2030

 

Source: Folkestone/ABS. Click to enlarge.

The Aged Care Financing Authority estimated in 2015 that the residential aged care sector will need to build approximately 82,000 additional places over the next decade compared with 36,778 new places created in the decade leading up to June 2014. At the same time, the sector will need to rebuild a substantial number of current facilities which are old, inefficient and don’t meet the standards of the government and the community. Assuming that the cost of construction continues to grow at the current rate, and that a quarter of the current stock of buildings is rebuilt at an even rate over the next decade, the Federal Government estimates the sector will require about $33 billion of investment over the next decade.

Figure 3: Number of operational residential aged care places required, 2014 - 2025

Number of Operational Residential Aged Care Places Required 2014_2025 

Source: Aged Care Financing Authority. Click to enlarge.

An attractive asset class

We believe all three components of the seniors living sector – manufactured housing estates, retirement villages and aged care – will continue to professionalise, consolidate and become more attractive as an investment asset class.

This will require a substantial amount of capital, and we see significant opportunities for investors taking a long term investment view to participate in the evolution and growth of this important sector either through investing in the operations or the underlying real estate via both the ASX and unlisted funds.

 

Adrian Harrington is Head of Funds Management at Folkestone Limited (ASX:FLK). This article is general information and does not consider the investment needs of any individual. Future articles by Adrian will explain the fees and funding of various retirement sector facilities.

 

  •   28 July 2016
  • 1
  •      
  •   

RELATED ARTICLES

Don’t rush to sell your home to fund aged care

Aged care and the Intergenerational Report

10 things I learned about dementia and care homes from close range

banner

Most viewed in recent weeks

How to minimise tax with a will

Inheritance tax implications in Australia may surprise some, as poor estate planning without proper wills or trusts can lead to costly tax bills and delays for beneficiaries.

Testamentary trusts post-budget: Estate planning, tax reform and the ‘death tax’ debate

Proposed Budget changes to taxation are casting new uncertainty over testamentary trusts, prompting closer scrutiny of estate planning structures and the real implications of reforms still taking shape.

Meg on SMSFs: The CGT changes don’t impact super but what about Div 296 tax decisions?

New CGT rules could tip the scales in the super vs non-super debate. For those facing the Division 296 tax, the case for withdrawing has gotten more complex. A "comparison rate" tool may help assess decisions.

High quality businesses are on sale

Beneath the dominance of the ASX's largest stocks, much of the market has been left behind. High-quality companies are now trading at levels rarely seen, offering opportunities for investors willing to look deeper.

The investment mistake killing your returns

Retail investors face an increasingly complex product environment, but simplicity may be the most overlooked advantage in building a portfolio you can actually live with.

Welcome to Firstlinks Edition 667 with weekend update

The downfall of the giant and three lessons for investors.

  • 18 June 2026

Latest Updates

SMSF strategies

Meg on SMSFs: How wide is the ban on LRBAs?

The government's recent deal with the Greens has put SMSF property borrowing on the chopping block. The change raises tricky questions about timing, exceptions and what SMSFs will still be able to buy.

Shares

Why Australian shares are falling behind the world

Australia’s market boasts a long record of outperformance, but recent results tell a different story. Is the ASX’s lagging performance a temporary setback or evidence that structural forces will keep global markets ahead?

Taxation

The strange effect of the 30% minimum capital gains tax

The 30% minimum tax on capital gains sits at the heart of the budget's proposed reforms. Yet the mechanics reveal anomalies that introduce unexpected distortions that raise questions about its design.

Shares

The next phase of Australian equity leadership

For years, banks have powered Australian sharemarket returns. But changing economic conditions, stretched valuations and global trends suggest the next generation of winners may not be found in familiar domestic sectors.

Economy

Global market growth hinges on Iran War and AI rollout

Global growth is facing mounting pressure from war, higher oil prices, inflation and trade tensions. But a wave of AI-related investment may prove powerful enough to support economic activity and reshape the outlook for markets.

Retirement

The retirees who can't spend

Why do so many retirees pass away with their wealth intact? Conventional wisdom blames pension rules for the reluctance to spend, but a case study from New Zealand shows that the answer may not be as predictable.

Investment strategies

Here’s my investment philosophy. What’s yours?

Investors often hear they need an “investment philosophy,” yet few know what that really means. Beneath the jargon sits a simple idea: a handful of core beliefs that shape every financial decision, for better or worse.

Sponsors

Alliances

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.