On the surface, a disastrous figure. Across 610 villages the average occupancy was 89% compared to an historical sector average of 94%. This is a huge downward change in 18 months.
What does it mean? The village sector is a two-speed economy. Our estimate is that at least 25% of operators/villagers are full (95%+ occupancy) and can sell whatever becomes available, while approximately 75% have sluggish sales momentum.
Confirming this, 28% of the villages in the PwC survey said their sales increased in FY18 compared to FY17 while 47% said they were lower. 25% said sales rates were unchanged.
Look to Uniting in NSW. Last week they informed us that across their 2,500 retirement village units they have 53 vacancies. Two of the largest village operators on the Mornington Peninsula are “full”. Rapidly growing Oak Tree has had to temper some of its marketing because sales are exceeding their building capacity.
The PwC/Property Council survey, in about its fourth year, catches 610 villages across 52 operators, delivering 68,000 participating units. 83% are privately operated units.
It reveals business metrics going in the wrong direction. Average days from vacant possession to settlement is 243 – that’s eight months.
PwC’s Tony Massaro, in his Canberra presentation last week, said 38% of operators got their maximum DMF this year, compared to 60% last year. He also pointed out that the national average price of a two-bedroom unit has seen only moderate growth year-on-year (circa 4% CAGR over the past five years) compared to residential housing that has seen double-digit growth in most of those years.
Across the 52 operators they plan to bring 2,000 new units to the market in FY19, being 600 units in new villages and 1,400 in existing locations. This would indicate 3,000 new units across the whole sector may be built, which would represent a capital requirement, at $450,000 cost each, of $1.35 billion.
This sounds good but does not match the 5,500 minimum number of units a year required to maintain penetration of 8% of all people over the age of 75. This is at least the fifth year any reasonable target has been missed. Over the past 10 years, New Zealand has gone from 8% penetration to 13%.
NZ operator Ryman last week announced their ninth village will be built in Ocean Grove on the Bellarine Peninsula – all concentrated in and around Melbourne since they arrived in 2013, and all big villages with fast sales.
Just 2% of residents last year were under the age of 70 and a further 10% aged 70 to 75. The average age remains at 81. (This compares to an average age of 84 in the StewartBrown benchmark surveys which are overweight in not-for-profit operators). The PwC research confirms the average age of a new village resident is now 75.
The average occupancy is now eight to nine years. Here is an interesting side note: you may recall that one of the biggest criticisms of Aveo in the Four Corners/Fairfax media campaign was the ‘churn’ of residents at just over 10 years. This means a whole sector is ‘churning’!
In summary, the survey says some operators have mastered the delivery of their value proposition while others are missing the mark. The willing customers are there to be won, and they need to be if the sector as a whole is to be vibrant for its residents – and optimistic.
You can download a copy of the top line results from the Retirement Living Council website HERE.