Aging smartly and independently

An aging boomer population is driving demand for retirement homes. Learn how investors can benefit.

28 May 2019

Key takeaways

  • The mid-20th century baby boom will continue to drive demand for retirement homes in the US.
  • The UBS Chief Investment Office (CIO) notes that other near-term drivers for retirement homes are lower interest rates, wealth creation in the stock and housing markets, and supply growth.
  • The automation and robotic market is currently sized at USD 177.5 billion, and the industry's average revenue is expected to grow in the mid-to-high single digits, as noted by CIO.

In April 2019, Cox Communications debuted its first “Connected Independence” smart home in Rhode Island. The home features "a variety of technologies that help to safeguard the quality of life and security for residents." According to Cox, the goal of the smart home is to help seniors "age in place."

The US Center for Disease Control and Prevention defines aging in place as "the ability to live in one’s own home and community safely, independently and comfortably, regardless of age, income, or ability level." The Cox Communications "Connected Independence" smart home is part of a new housing community that promotes independent living for seniors.

According to the Census Bureau, by 2035 in the US, people 65 and older will outnumber children. The mid-20th century baby boom will continue to drive demand for retirement homes in the US for the coming decades, according to the UBS Chief Investment Office (CIO).

The US and China appear to have the most favorable growth outlook for retirement homes, which is the topic of a Longer-term Investment theme of CIO. The expected growth rate of the population needing care in the US from 2015 to 2035 is 52%; in China, it's 66%, according to the World Bank and OECD.

Other near-term drivers for retirement homes are lower interest rates, wealth creation in the stock and housing markets and supply growth, notes CIO. "Retirement home operators and care providers, and specialized real estate companies should profit from this strong demand growth and resulting capital needs," says CIO economist Matthias Holzhey.

This investment theme has a balanced risk of return and a favorable mix of service and real estate. Operators are likely to profit faster from the secular growth story. Pure real estate investments exhibit lower risk, but lower exposure to demand growth. Also, this theme is considered part of impact investing as it addresses the UN's Sustainable Development Goals of Good health and wellbeing, and Sustainable cities and communities, according to CIO.

"But the projected increase in the need for care will face significant spending constraints. Home healthcare services as a cost-effective alternative should grow rapidly alongside the retirement homes industry," says Holzhey.

The "Connected Independence" home has more than 50 connected smart devices, according to The NK Standard-Times, that can help seniors live independently. Some technologies found in the home, as noted in the story, are automation, telehealth, virtual reality, and security. Innovations in connected technology, particularly smart home devices, can help seniors maintain their independence.

Smart technology within a home consists of a network of sensors that feed into a single web portal. Seniors can connect to health care providers, caregivers and loved ones via video chat. Also, the home system can send help alerts if, for instance, someone doesn't open the refrigerator at the usual time, which could be a signal that they need assistance.

Automation and robotics are the focus of another CIO Longer-term Investment theme. Based on CIO's market definition, the market is currently sized at USD 177.5 billion, and the industry’s average revenue is expected to grow in the mid-to-high single digits. Interested investors can research robotics technology and industrial software for possible opportunities.

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