Investor Interest in Seniors Housing Upbeat for 2023

(The Village at Gainesville, a seniors housing property in Gainesville, Fla. Photo courtesy Dwight Capital, New York.)

JLL Valuation Advisory Group, Chicago, said despite pricing uncertainties limiting capital markets activity, interest in seniors housing remains optimistic as investors seek higher yields from alternative asset classes.

The company’s annual Seniors Housing Investor Survey and Outlook found 44% of investors surveyed indicated they would increase their exposure to seniors housing in 2023; another 44% indicated they would make no change to their current investments. Only 12% of surveyed investors indicated they would decrease their exposure in 2023.

The survey said investors are more bullish on the assisted living and skilled nursing segments of the sector this year, with 31% of respondents indicating they would invest in assisted living up from 28% in 2022 and 26% of investors interested in skilled nursing, up from 17% the prior year.

“While there are certainly challenges in the current capital markets, the underlying fundamentals of the seniors housing sector remain strong,” said JLL Managing Director Brian Chandler, Co-Lead for the JLL Seniors Housing Practice. “We’ve seen rising occupancy rates, rising rents and a very muted construction pipeline, which will drive demand through 2023 and beyond.”

Key takeaways from the report include:

–Stabilized occupancy reached a historic low of 80.3% across primary markets post-COVID. Since then, occupancy has risen to 84.4% in primary markets and up 5% in secondary markets to 85.9%. While it is still lagging from the peaks seen before the pandemic, Q4 2022 marked the seventh quarter in a row for positive absorption. Inversely, inventory growth has fallen 41% on average in the same periods.

–As institutional investors and core funds pull back in most sectors, private capital has taken an increasing share with developers and owners seeking to enter the seniors housing space. Strong demographic tailwinds continue to drive demand and higher yields than other core asset classes drive investor demand.

–Prior to the pandemic, seniors housing rents had been steadily increasing around 2% to 3%. After eight quarters of declining growth, the pace of rent growth accelerated through 2022 up 4.9% on an annual basis, compared to 1.5% at the beginning of 2021.

–Of the fastest 30 metros with more than 100,000 residents aged 75-plus, 27 of these are in the Sunbelt. However, the rate of growth for seniors housing has varied, with some markets, including El Paso, Texas and select Florida markets, seeing limited growth over the past decade presenting a potential opportunity to increase the rate of growth of seniors housing to match the project population growth.

“The 80-plus population in the U.S. is expected to grow by more than 50% in the coming decade compared to the overall population growing just 4.7%,” said JLL Managing Director Bryan Lockard, Co-Lead for the Seniors Housing Practice. “This underscores the enormous wave of pending demand for additional seniors housing and nursing care facilities providing ample opportunity for developers, owners and investors in the sector long-term.”