LOS ANGELES — Appetite for seniors housing remains strong despite higher operating costs, with nearly two-thirds of investors planning to increase their buying over the next 12 months, according to the CBRE U.S. Seniors Housing & Care Investor Survey.
CBRE is a Los Angeles-based real estate services firm. The survey polled more than 100 seniors housing investors, developers, lenders and brokers throughout the United States. The results reflect pricing and sentiment at the end of 2018.
The majority of investors (62 percent) aim to expand the size of their portfolios over the next year. More than one third (34 percent) are expecting no change to their level of acquisitions. The percentage of investors who plan to increase (or maintain) their level of investment in seniors housing is essentially unchanged from last year’s survey.
“Senior housing demand should remain at relatively healthy levels through 2019, given expected steady economic growth and lower mortgage rates,” says Jeanette Rice, Americas head of multifamily research at CBRE. “Demographic trends are positive for the asset class, with the baby boomers nearing the traditional age for seniors housing and nearly 9,000 turning 70 every day this year.”
Investors remain focused on “lifestyle” seniors housing, with independent living and
assisted living tied for the most preferred segments (both at 28 percent). While interest in independent living has declined since the last survey, interest in active adult communities (22 percent), which offers fewer 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.
Property operating and development costs remain the top concern for investors (43 percent), increasing in relevance from a year ago, largely because of issues resulting from labor shortages. Construction activity (oversupply) also increased as a top concern for investors (22 percent).
“With new supply beginning to taper, operators will leverage rent growth to help offset rising costs and maintain a healthy bottom line,” says Zach Bowyer, senior managing director of Valuation & Advisory Services at CBRE. “We are beginning to see innovative design trends, operating models and technologies take hold as potential industry disruptors.”
The survey revealed that seniors housing capitalization rates may have reached a low, 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 may be taking pause at the pricing levels for Class A properties in core market locations. Most investors (68 percent) expect cap rates to remain firm over the next 12 months.