In 10 short years, from 2005 to 2015, the number of people turning 65 each year exploded from 2.2 million to 3.5 million. Many of these older Americans are increasingly choosing to rent. With this surge of older renters, developers are building age-restricted or so-called “active-adult lifestyle” apartments. These apartment communities are designed specifically for older renters and are commanding a significant premium for doing so.
First of all, why are older Americans choosing to rent?
Some prefer the flexibility that renting offers, especially when moving near their children and grandchildren or trying out urban living for a while. Less home maintenance also draws homeowners to a rental lifestyle. For others, a lack of sufficient savings for their elongated retirement will cause them to cash out on their current home and rent an apartment. These are among findings from the new book “Big Shifts Ahead: Demographic Clarity for Businesses” by John Burns and Chris Porter.
What makes a successful age-restricted lifestyle community?
Through our work across the United States, we found that successful age-restricted lifestyle communities are based on three things:
1. Proximity to residents’ favorite activities and key services.
2. Additional safety precautions and comfortable home designs.
3. A sense of community.
The best communities have specific attributes, as shown in the accompanying chart.
How much more are rents in age-restricted apartments than in market-rate apartments?
Interestingly, successful age-restricted lifestyle communities are able to charge a premium over market-rate communities. We found that age-restricted properties may achieve a 12 percent to 35 percent premium above market-rate apartments, depending on local market competition, property specification levels and the types and varieties of property amenities.
However, it is important to note that age-restricted properties charging significantly higher premiums above market-rate units resulted in slower absorption paces. Additionally, operating costs could also be higher in lifestyle communities due to activity programming and more amenities to maintain.
We compared three successful age-restricted apartment communities to nearby market-rate apartments with similar building types and ages. The examples in the accompanying chart are in suburban, walkable locations that bring the best of urban living to a more affordable suburban environment (what we like to call “surban”).
Looking ahead, an aging population and the increasing propensity to rent will result in demand for age-restricted properties. We believe that demand for age-restricted rentals will remain solid in the years to come.