Investors remain optimistic about senior housing, with many planning to increase their exposure to the sector in 2023 — particularly in assisted living, according to the latest investor survey report from commercial real estate services and property investment strategy company JLL.
Rising occupancy and rents, along with limited construction starts, have 44% of respondents to the sixth annual Seniors Housing Investor Survey and Outlook report from JLL’s Valuation Advisory group planning to increase their exposure to senior housing this year. Thirty-one percent of those respondents said they would invest in assisted living, up from 28% last year.
“While there are certainly challenges in the current capital markets, the underlying fundamentals of the seniors housing sector remain strong,” JLL Managing Director Brian Chandler said in a statement. “We’ve seen rising occupancy rates, rising rents and a very muted construction pipeline, which will drive demand through 2023 and beyond.”
After occupancy reached a historic low of 80.3% across primary markets in the wake of the pandemic, levels there climbed to 84.4%, whereas occupancy in secondary markets was up to 85.9%, based on data from the National Investment Center for Seniors Housing & Care (NIC) MAP fourth quarter 2022.
Occupancy recovery was consistent across the majority of independent living communities, where occupancy fell from 91.1% in the first quarter of 2020 to 83.8% in the first quarter 2021. Since then, occupancy rates in independent living has jumped to 86.9%.
Although occupancy still lags pre-pandemic peaks, high absorption, combined with below-average inventory growth, is moving occupancy in the right direction, according to the report. The fourth quarter of 2022 marked the seventh consecutive quarter of positive absorption. At the same time, inventory growth fell 41%, on average.
Construction starts suffered during the pandemic but began to pick up in 2021. Economic turmoil that led to limited lending and rising interest rates and construction costs are expected to keep construction starts down in the near term.
Sun Belt presents growth opportunities
But opportunity exists in some Sun Belt markets as the growing population of older adults creates stability for senior housing, the authors said.
The coming wave of baby boomers aging into the long-term care system “underscores the enormous wave of pending demand for additional seniors housing and nursing care facilities,” according to the report.
Of the 30 fastest-growing metropolitan areas for the 75-and-older population, 27 are in the Sunbelt. But senior housing growth has varied. Some markets, including El Paso, TX, and select Florida markets, have seen limited growth over the past decade. This, according to the JLL report, presents a potential growth opportunity to match the growing population.
“The 80-plus population in the US is expected to grow by more than 50% in the coming decade compared to the overall population growing just 4.7%,” JLL Managing Director Bryan Lockard said in a statement. “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.”
