JLL: Seniors Housing Sector Positioned for Growth

The seniors housing sector should grow as long-term demand remains positive and an aging Baby Boomer population needs more care, reported JLL Valuation Advisory, Chicago.

JLL said the sector faces its strongest demand ever as it navigates through the current pandemic. Construction delays from the pandemic will magnify the long-term supply shortage, and with many Baby Boomers within a decade of occupancy, medium- and long-term investment remains positive. “Additionally, the need to serve the middle-income population will continue to grow, resulting from the global impact of COVID-19,” the JLL Seniors Housing Investor Survey and Outlook report said.

JLL Managing Director Zach Bowyer said investors remain bullish on seniors housing and care investments. “We anticipate market fundamentals to steadily improve and the market to re-stabilize between two and four years, depending on the location,” he said.

The seniors housing and nursing care sector had one of its strongest years for transactions in 2019, and 2020 looked to be another solid year for the sector until COVID hit. Despite seniors housing and care transaction volume falling nearly 50 percent year-over-year to $9.2 billion in 2020, 53 percent of sector participants said they plan to increase their exposure to the sector in 2021, JLL reported.

The survey also revealed that many participants are moving to more traditional and need-driven segments after a trend toward more lifestyle-focused segments of seniors housing. Nearly 40 percent of respondents identified assisted living as the most sought-after investment opportunity this year.

Additionally, available capital for commercial real estate investment remains near record highs despite the disruption, with the seniors housing and nursing care sector noticing a significant increase in the percentage of private capital placement.

“Dry powder for commercial real estate investments is at an all-time high,” said JLL Managing Director Bryan Lockard. “Investors are being cautiously selective, as short-term and long-term uncertainty remains for most sectors, with confidence increasing from a successful vaccine rollout within seniors housing communities and declining infection rates.”

Seniors housing valuations dropped to an eight-year low last year with an average price per unit of $141,800, the report said. The average capitalization rates for seniors housing transactions increased year-over-year by 50 basis points to 6.5 percent after reaching a record low 5.9 percent in 2019.

“It’s important to note that the long-term demographic tailwinds for the sector continue to be intact,” said JLL Managing Director Brian Chandler. “Many transactions in 2020 represented liquidation events since owners who are well-capitalized opted to hold and operate through the pandemic with expectations of a rebound in valuations.”