Growing Investor Demand for Seniors Housing

Investor appetite for seniors housing is growing. Nearly two-thirds of investors plan to increase their buying over the next 12 months, said CBRE, Los Angeles.

While most investors in CBRE’s U.S. Seniors Housing & Care Investor Survey said they aim to expand their portfolios over the next year, more than a third said they expect no change to their pace of acquisitions.

“Seniors housing demand should remain at relatively healthy levels through 2019, given expected steady economic growth and lower mortgage rates,” said CBRE Americas Head of Research Jeanette Rice. “Demographic trends are positive for the asset class, with the baby boomers nearing the traditional age for seniors housing and nearly 9,000 people turning 70 every day this year.”

Rice said investors prefer “lifestyle” seniors housing, with independent living and assisted living tied as the favored segments at 28 percent. While interest in independent living has declined over the last six months, interest in active adult housing, which offers less service options and is targeted at a slightly younger demographic, continues to rise.
Investor interest in nursing care (17 percent) and continuing care retirement communities (6 percent) saw slight increases, while memory care remains the least attractive to investors (4 percent), likely due to the overbuilding of this property type in recent years, Rice noted.

Property operating and development costs remain the top concern for investors, increasing in relevance from a year ago largely due to labor shortages. The threat of oversupply also increased as a top concern for investors.

“With new supply beginning to taper, operators will leverage rent growth to help offset rising costs and maintain a healthy bottom line,” said CBRE Senior Managing Director of Valuation and Advisory Services Zach Bowyer.

Bowyer also noted several potential industry disruptors on the horizon, including new operating models and technologies.

The report said seniors housing capitalization rates may have reached a low point, with “negligible” compression identified by investors since a year ago. Cap rates compressed the most for Class B non-core or secondary market locations, indicating investors are looking at these assets because prices for Class A properties in core markets are too high. More than two-thirds of investors said they expect cap rates to remain firm over the next 12 months.