The Silver Tsunami: Can REITs Help You Ride the Wave?
Tim Gibson, Guy Barnard and Greg Kuhl, Portfolio Managers for the Global Property Equities strategy, discuss how REITs can provide a way to capitalize on aging populations.
- Over the next 25 years, the global population of people aged 65 and older is expected to double to almost 1.3 billion.
- These baby boomers remain a key demographic for real estate owners.
- While most expect businesses directly associated with health care delivery, such as senior living facilities, to benefit from this “silver tsunami,” the team believes manufactured housing communities for new retirees could be better positioned.
The “silver tsunami” metaphor is frequently used to describe the aging of the baby-boom generation, those born from approximately 1946 to 1964. According to the United Nations Population Division, over the next 25 years, the global population of people aged 65 and older will double to almost 1.3 billion. In the U.S., this age segment already accounts for nearly 25% of the population and is the country’s second-largest demographic group. In China, the scale of this issue is such that authorities relaxed China’s one-child policy in 2015 due to concerns about the 4-2-1 problem of one child caring for two parents and four grandparents.
The Cart Before the Horse: Assisted Living Facilities
Clearly, the needs and desires of this cohort have been a driving force in shaping many aspects of today’s economy and society. It should come as no surprise that baby boomers remain a key demographic for real estate owners. In real estate, conventional wisdom seems to be that those businesses directly associated with health care delivery, such as senior living facilities, are best positioned to benefit from the silver tsunami. This may explain why the assisted living industry has seen an explosion in new development, with total available supply increasing by more than 4% annually over the past five years.
Unfortunately, however, this development is being completed well ahead of the demand to fill it. Brookdale Senior Living, the largest senior housing operator in the U.S., has an average entry age of 85 years in its assisted living facilities, yet the oldest baby boomers in the U.S. are turning 73. We expect senior housing, which accounts for the largest portion of U.S. health care REIT asset value, to remain challenged for several more years as supply growth is set to continue outpacing lagging demand.
Near-Term Demand: Manufactured Housing for New Retirees
In our view, other areas within U.S. REITs are better positioned to ride this demographic wave today and over the medium term. Manufactured housing communities for new retirees, for example, are meeting the needs of aging households today, not 10 years from now. These communities are home to relatively young, independent and fun-loving recent retirees, with an average entry age of around 60 and an average tenancy longer than 10 years. With baby boomers ranging in age from 55 to 73, and 10,000 Americans turning 65 every day until 2030, this property type is uniquely positioned to benefit from a large and growing demand pool. Importantly, little to no meaningful new development of manufactured housing communities is expected, which we think creates a favorable environment for owners of these assets.
In our opinion, global REITs investors should focus on the cities, sectors and companies that could potentially benefit from the demographic trends described above, as well as structural shifts driven by technological advances. For those REITs able to benefit from the trends associated with an aging population, it may well prove to be a silver lining for earnings.
Real estate securities, including Real Estate Investment Trusts (REITs) may be subject to additional risks, including interest rate, management, tax, economic, environmental and concentration risks.