The senior housing sector is recovering from pandemic-related disruption, backed by strong long-term demand and increased investor interest, according to the results of a JLL survey published Thursday.
The firm surveyed more than 100 respondents from among influential leaders in the sector.
Investors have become more bullish as the economy recovers, according to the report. For the most part, respondents indicated that they believe that the worst of the pandemic is over.
Eighty percent of the respondents said they expect market fundamentals to improve; a year ago, only 48% were optimistic. About three-fourths of the investors expect their exposure to senior housing to increase over the next year. Most respondents indicated they expect seniors housing capitalization rates to remain the same throughout 2022, at 47%. Another 38% expect them to decrease, according to JLL.
Throughout 2020, due to pandemic-related disruptions, the senior housing and nursing care sectors recorded their weakest transaction volume since 2012. Investment volume was down 43% on a year-over-year basis in the fourth quarter of 2020.
The trend reversed “substantially” by the end of 2021; volume had bounced back, up 61% from the first quarter of 2021.
Investors are looking at alternative assets for growth outside of traditional sectors, which is good news for the senior housing market, JLL said.
“As a subset of alternative assets, seniors housing investor activity is set to flourish. The scale of the sector continues to grow and has depth in every market across the U.S.,” the report states. “The long-term opportunity is quite attractive for institutional capital looking to diversify their portfolios or hedge against oversold investment classes.”
Rising interest rates and inflation are prime concerns for many investors, although JLL commented that, historically, the relationship between benchmark yields or fed rate-hike cycles and commercial real estate yields is relatively weak.
“Seniors housing cap-rate spreads over benchmark yields have normalized since the onset of the COVID-19 pandemic and ended the year near historical averages. The added relative yield coupled with improving seniors housing fundamentals may prove attractive to commercial real estate investors seeking higher returns as inflation and fed actions place upward pressure on Treasury yields in the months ahead,” the authors of the report stated.
Rising occupancy in senior housing is a positive sign for investors, the report authors said. After hitting a low point in 2020, market fundamentals began to recover throughout 2021. Stabilized occupancy rates began to rise by mid-year 2021, closing the year at 82.8% in primary markets and 83.7% in secondary markets.
New construction is picking up in the senior housing sector, particularly in the Sun Belt markets. Looking at construction as a percentage of all inventory, according to JLL, eight of the top 10 markets are in the Sun Belt region.
Overall, long-term demand looks solid for investors, as a third of the population is aged 55 or older. That demographic is expected to rise by 6.4% by 2025. Senior housing is one of the “most stable” asset classes, JLL concluded.
