When Stockland CEO Tarun Gupta sold the 58 villages and 10 development projects underway in its Retirement Living business to Swedish investment firm EQT Infrastructure (EQT) for $987 million in February 2022, he made one very telling comment.
As he launched into the seniors’ land lease community (LLC) market, he said Retirement Living was delivering a 3% cash profit which was not up to Stockland’s expectations.
Colliers’ latest Land Lease Community Market Overview shows why Tarun was right.
“As the asset class has matured, we have seen LLC yields tighten broadly in line with traditional property asset classes including office, industrial and retail assets.”
“Rising construction costs may put pressure on profit margins, particularly for new developments. However, established communities with stable occupancy rates are expected to maintain healthy profit margins in the range of 55-75%,” said Colliers.
“LLCs continue to offer competitive (investor) returns, with current yields ranging between 4.5% and 7%. As demand continues to outstrip supply, yields are likely to tighten further, making LLCs an attractive investment option.”
The report states “the sector is projected to see annual revenue growth of 5-7% over the next five years, driven by the expansion of existing communities and the development of new sites. High occupancy rates are expected to ensure stable income for operators.
“LLC assets are expected to appreciate by 4-6% annually, reflecting growing investor interest and the compression of yields in the property sector. Well-located communities with modern amenities are likely to command premium prices.”
Queensland has the highest penetration rate of 1.95% (2022), with the forecasted penetration rate 2.43% in 2032. NSW has a penetration rate of 1.33%, with a forecasted penetration rate of 1.42% in 2032. Victoria has a penetration rate is 0.59% and is forecasted to reach 0.83% in 2032.
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