DALLAS — Looking forward to the rest of 2024, seniors housing investors expect capitalization rates to stay flat or compress, rents to rise faster and operating expenses to continue to increase.
That’s according to a seniors housing investor survey by BBG, a Dallas-based commercial real estate services firm. Conducted in January 2024, the survey garnered insights from key players across the U.S. seniors housing market, including investors, developers, lenders and brokers. The methodology and number of respondents were not disclosed.
Seniors housing property types analyzed in the survey include active adult, independent living, assisted living, memory care, skilled nursing and continuing care retirement communities (CCRCs). Survey results were analyzed by asset class and market quality with primary markets identified as the top 50 markets within the United States, while secondary markets encompass the remaining markets.
Highlights of the survey include:
- Cap Rates Projected to Remain Flat or Compress: Capitalization rates for all seniors housing care levels are expected to remain flat or decrease in 2024. Last year in 2023, the market was anticipating and underwriting cap rate expansion.
- Higher Rental Rate Growth Projected: Rental rate growth for all care levels is expected to continue to increase significantly in 2024, consistent with the trends in the post-pandemic environment. Over 90 percent of respondents are expecting rental rate growth in 2024 for property types excluding care. For assisted living and memory care, the most frequent projection was for growth between 5 percent and 10 percent.
- Active Adult Leads Stabilized Occupancy: Respondents predict active adult communities will have the highest stabilized occupancy in 2024, while skilled nursing facilities are anticipated to have the lowest rate.
- Operating Expenses on The Rise, Margins Under Pressure: A majority of the respondents (81.7 percent) indicated operating expenses are expected to increase by 3 to 5 percent in 2024, compared to 77.5 percent in 2023.