The good news is that around the world, we are living longer. The bad news is that around the world, we are living longer. Yes, you read that right. Living longer cuts both ways. It means more economically productive time, more time to spend with friends and family, and more time to experience the world. But it also means higher spending on healthcare, strained pensions, and new ideas about what it means to continue to participate in culture and community in ways that historically have been viewed as unusual and unexpected, but going forward will be very typical – and thankfully so.
With the realization that we are all living longer in mind, now is the time for American and European senior living companies to begin laying the groundwork for the globalization of senior living. The same BRIC economies that created much of the economic growth over the last thirty years are now coming to terms with their own aging population. What this means is that healthcare and senior care operators from more developed western economies have the same type of opportunity to export their commercial and care models as their industrial counterparts have taken advantage of since the 1980s.
In each of the BRIC economies, a set of factors are coming together to create the opportunity for privately run senior living and home healthcare businesses: aging populations, an emerging middle class, lack of public sector solutions, and in a handful of cases government incentives designed to facilitate private investment. These factors are most developed in China, which since 2009 has been aggressively working to develop a senior living industry; however, countries such as Brazil, India, Malaysia, Mexico, the Philippines and Thailand are developing early care models that suggest how western care models might be localized for overseas markets. Most interesting are the handful of countries that are also pushing forward on key reforms designed to attract foreign direct investment (FDI) into senior care.
The opportunity in China is the export opportunity that is most well known: by 2050, the country will have more elderly aged 65 and older than the total population of all ages in the United States. Consequently, China’s largest real estate and insurance companies are moving to build very large Continuing Care Retirement Communities (CCRCs), many in partnership with American senior care providers. A handful of domestic Chinese companies are working on very innovative models that have the potential to deliver a true middle-class solution in contrast to the higher end projects that have been launched. Western pioneers such as Merrill Gardens from the United States, Aveo from Australia, and Orpea from France are all early into their own strategies in China.
Overlooked, but very much worth the attention of western senior care providers is India, where the country’s aging is going to present an even greater problem, and opportunity, than in China. As a study on India’s own demographic time bomb pointed out, “While the overall population of India will grow by 40% between 2006 and 2050, the population of those aged 60 and above will increase by 270%.” In real terms this means an increase from 100 million elderly to over 300 million by 2050. A smaller number of western senior care companies have targeted the Indian market, with initial partnerships crafted by the American senior care operator One Eighty and Signature Senior Living already launched. India’s own domestic developers and entrepreneurs are expanding their own offerings across the country, most noticeably the work done by Antara Senior Living, Ashiana, and Vedaanta to name only three. In addition, pioneering home healthcare models are exploding across India, significantly outpacing similar efforts in China as measured both by the level of sophistication of the care model, the type of technology utilized in the home, and the number of patients receiving care.
Brazil has its own early innovators in senior care, companies like Prolifico who both acquires existing properties and pursues greenfield senior living projects, in partnership with former BUPA executives who manage 400 assisted living properties internationally. Peer Buergin, Prolifico’s COO/CFO recently shared with me that their own efforts to build assisted living facilities across the country is being met with very positive response by the market. As Peer put it, “we are in the very early stages of senior living in Brazil. Now with the demographic need in Brazil growing, and with increased wealth we see this sector as getting ready to grow.” The WHO projects that by 2025, Brazil will have the 6th most populous elderly population in the world.
Peer pointed out a challenge that other countries have also struggled with: “Real estate prices have historically been the issue, making it sometimes challenging to find the right properties in the center of an urban area” This same problem plagues nearly every other BRIC economy working through how to develop an aged care sector, most chronically in Hong Kong and Singapore.
From purely a demographic point of view, both Hong Kong and Singapore should be markets ripe with opportunity for senior living projects. Even more so given the fact that both have relatively sophisticated healthcare systems – especially when compared to their regional peers – and both have well developed middle classes with adequate accumulated net worth to make senior housing solutions in particular possible. Yet neither market has developed a vibrant private sector solution, a realization that David Lane the Chairman at Thomson Adsett, an Australian based architect and solutions provider for senior care companies, believes reflects policy decisions made years ago.
According to David, “No real attempt was made by the Government sic -Lands Department – to innovate policy options to incentivize a new senior housing product and no recognition was given for the risks attributable to both the not-for-profit sector and the for-profit sector with the construction of such products.” This was particularly problematic because in markets such as Hong Kong, that have extremely high land costs. David recognizes that in Hong Kong there was a missed opportunity in the late 1990’s as he sees it, to “incentivize GIC land (government, institutional and community) to actively promote the Seniors Living Sector at the same time give alternative cash flow streams to the charitable sector in particular. Concurrent with this, there was no serious attempt to optimize site density opportunities – for example encouraging air right options over underutilized GIC land leased to NGO’s or provide for flexibility in mainstream residential projects with discounted/incentivized land premiums to encourage integrated developments.” Having seen similar efforts in other markets yield positive results, David believes that, “Had this been done a win-win for both the operator and the government would have been achieved creating a vibrant new emerging industry that addressed a pressing social problem.”
Senior living projects in Malyasia, most noticeably AraGreens as well as projects like Absolute Living in Thailand or G&P Builders in the Philippines all point to the growing awareness by real estate developers and institutional investors that senior living is quickly becoming a globalized service and product offering. The question is which American, European and North Asian senior living operators are positioned to capture these opportunities.
Four internal issues need to be addressed for these western providers to execute on the globalization of senior living. First, the management team needs the bandwidth and expertise to navigate within foreign markets. This is a new skillset for most western providers, and as such, many companies dual task an existing executive who has other responsibilities to also investigate international opportunities. This rarely leads to the type of robust in-depth analysis required to make a sound strategic decision, let alone build an executable plan.
Second, the company needs to honestly evaluate their risk tolerance for going overseas. Several American senior living companies, most notably Sunrise in Germany, have struggled to be successful overseas. This lesson has not been lost on other operators who wonder if others have not been successful, can they be?
Third, western senior living companies need to get beyond the short-to-mid term opportunities in their domestic markets. The American Baby Boomers represent another ten to fifteen years of growth for senior living companies, but after this, those groups that have built a real international strategy will be fundamentally more sound and able to deliver growth and profit to shareholders than their competitors who stayed purely focused on domestic opportunities.
Fourth, senior living companies need to carefully weigh the real trigger for senior living overseas; specifically whether lifestyle or needs-based solutions are what will open the door. In foreign markets, with relatively un-developed long term care insurance vehicles, inadequate public or private pensions, and newly minted middle classes, pure lifestyle solutions may not have the initial traction they had in western markets where these factors were more developed.
As the WHO put it in their study of global aging, “Population ageing is unprecedented, without parallel in human history—and the twenty-first century will witness even more rapid ageing than did the century just past.” The globalization of senior living is just beginning, and western senior care companies need to begin taking the opportunities to identify and scale internationally more seriously than they ever have. Domestic competitors are closely watching how the industry is emerging in China and India, with an eye to ultimately create their own brands that if successful will limit the upside potential for western companies that come to terms with the global growth opportunity too late.