As the U.S. population ages, the demand for senior housing has surged, presenting a unique and compelling investment opportunity. With strong demographic tailwinds, improving fundamentals, and a range of offerings tailored to diverse needs, the senior housing sector is primed for significant growth in the coming decades.
Kelli Carhart, Executive Managing Director of Multifamily Capital Markets, recently engaged in a Capital Markets Conversation with John Sweeny, Co-Head of the National Senior Housing Practice, to discuss why the future of senior housing looks so promising.
Demographics Driving Investor Interest
Every day, approximately 10,000 individuals in the U.S. celebrate their 65th birthday, and the population of those aged 80 and above—the prime demographic for senior housing—is growing four times faster than the average population. This unprecedented growth in the aging population is set to persist for the next 20 years, creating a sustained demand for senior living solutions.
The increasing longevity of Americans, coupled with a focus on aging with dignity and comfort, underscores the importance of thoughtfully designed senior housing communities. This demand is pushing the industry to innovate and deliver on the evolving expectations of an aging population.
Fundamentals Outperforming Other Sectors
The senior housing sector has shown resilience, rebounding from pandemic-related challenges with impressive momentum. Occupancy rates are expected to return to pre-pandemic levels by the end of the year, supported by robust demand.
Rental growth in the sector remains strong, with rents projected to increase by 5% to 7% in 2024. While this is a slight moderation from the remarkable 7% to 12% annual increases seen over the past two years, the outlook remains positive, thanks to a limited supply pipeline.
Cap Rates and Levels of Acuity
One of the unique characteristics of senior housing investments is how cap rates vary based on the level of acuity required by residents:
- Active Adult Housing: For seniors who require minimal assistance, cap rates align closely with those in the traditional multifamily sector, offering competitive returns with a lighter operational burden.
- Assisted Living and Memory Care: These facilities, which cater to seniors needing higher levels of care, feature cap rates up to 200 basis points higher than traditional multifamily properties, reflecting their operational intensity and specialized services.
A Compelling Investment Thesis
Senior housing combines several attractive elements for investors:
- Demand Tailwinds: The aging population ensures a consistent and growing need for senior living communities.
- Supply Constraints: A limited pipeline of new developments positions existing facilities to capture growing demand and achieve rental growth.
- Positive Leverage: Many properties are priced below replacement costs, offering compelling entry points for investors.
- Diversification: With a mix of acuity levels, senior housing provides varied opportunities to align with investor strategies and risk appetites.
Meeting the Needs of a Growing Population
Investors and developers in senior housing have a responsibility to meet the needs of this growing demographic. Beyond financial returns, there is an opportunity to innovate and create communities that not only provide essential services but also foster connection, dignity, and quality of life for seniors.
By focusing on modern design, integrated healthcare solutions, and engaging amenities, the senior housing sector can continue to evolve as a critical component of the broader real estate and healthcare ecosystems.
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