Active adult is one of the hottest specialty housing products today.
Consumer and investor demand are both rising rapidly. Over 40% of baby boomers are 65+ years old; the oldest turns 73 in 2019.
Older boomers are in active adult’s entry target ages—late 60s to mid 70s. Active adult is often marketed to younger seniors, but the average age of active adult residents is about 74 years.
Most seniors in the target age range will remain in their current homes (age in place). Given the large size of the baby boom (74.5 million), if even only a small percentage of the cohort chooses some form of seniors housing, that will create significant increases in demand for lifestyle seniors housing including active adult.
Investor Interest in Active Adult Rises
Increased investor interest is evident in CBRE’s Seniors Housing & Care Investor Surveys. The latest survey revealed that 22% of respondents—all from the traditional seniors housing industry—believe that active adult offers the best investment opportunity among the different types of traditional seniors housing products and active adult. The response is up sharply from 7.7% only four years ago.
In addition, traditional multifamily investors (and developers) see active adult as an extension of multifamily and a product type with significant investment and yield opportunity.
Housing for Younger Seniors
Active adult is one of many kinds of housing designed for younger seniors or housing where seniors are the predominant residents. Active adult can be considered a subset of a broad category of “lifestyle” seniors housing (meaning no healthcare services are provided).
Independent living is also considered “lifestyle,” but is a separate category of housing primarily because it is considered a traditional seniors housing product and because it provides communal dining as part of the fees to live in the community.
For both industry and consumers, the terminology is confusing and often not consistent. There is a blending of concepts at different communities. The confusion is not surprising given the long list of common characteristics as outlined in Figure 4. Figure 3 provides some of the different prevailing types of seniors lifestyle housing and different terms used in the industry. These are not hard and fast definitions, and both terminology and product offerings are evolving.
What is Active Adult?
Understanding active adult starts with positioning it in the housing spectrum (Figure 1), and distinguishing it from other similar housing product (Figure 3), a much more difficult task.
Active adult is blurring the line between conventional multifamily and independent living. It is not considered either, nor is it part of the traditional seniors housing spectrum. Prospective active adult residents often comparison shop conventional multifamily or independent living communities. Moreover, active adult is attracting investor and developer interest from both traditional seniors housing and conventional multifamily companies (and the broader real estate investment world).
The principal differences between active adult and conventional multifamily is the greater attention to community space and to activities. While some multifamily communities do have organized activities, they play a minimal role. In design, active adult and multifamily are quite similar, except for more square footage given to community space. However, many active adult communities are designed for possible evolution to independent living.
Active adult management also arranges for many resident services, more than conventional multifamily. Active adult rents are usually at a premium to comparable multifamily communities due to higher operating expenses (from more programming). Active adult lease-ups are usually much slower than conventional multifamily, though retention is reportedly higher. Prospective active adult residents visit a property several times before leasing, and the leasing decision process is further slowed if a home sale is involved.
Developers and operators of active adult communities are trying to create a new product appealing to baby boomers (“not my parents’ retirement home”), a product that emphasizes an active lifestyle and simpler way of living. Therefore one of the principal differences between active adult and independent living is the emphasis on the active living programming and recreational facilities (e.g., aerobics classes). This focus has much less emphasis in independent living in part due to independent living residents being older— the average age is the mid-80s and rising.
The other principal difference between active adult and independent living is that the latter offers full meal service and the former does not (hence, independent living comes at a much higher price point). Additionally, independent living communities offer more services than active adult. Often with active adult, these services are contracted out or “unbundled.”
One of the challenges of active adult communities is aging residents. As residents age, programming and services may need to change or the residents may need to change—both possibly problematic. Many active adult properties are being designed so they could be converted to independent living communities in the future. The key element is having flex space that could be converted to dining and a commercial kitchen. Individual unit designs also need to include features which make them adaptable for older seniors.
By Jeanette Rice, Americas Head of Multifamily Research, CBRE.
This is the first of a series of blogs on the active adult sector. The series will define the product, provide perspectives on its recent and future growth, explain the demographics behind the demand potential, examine market performance in the sector, identify leading companies active in the space, and much more.