JLL Surveyed Investors About Senior Housing. Here’s What They Said.

Once again, assisted living stands out as the most sought-after subsector, reports Bryan Lockard of the firm's Value and Risk Advisory Services.

Bryan Lockard

As we progress through the first half of the year, investor attitudes toward senior housing and care are adjusting to new market conditions, as reflected in JLL’s 2024 Investor Survey and Trends Outlook.

While challenges still persist, there appears to be an optimistic sentiment surrounding the sector, with 63 percent of investors planning to increase their investment exposure to senior housing in 2024 and another 29 percent committed to maintaining their current level of investment.

This sentiment stems from the sector’s demonstrated resilience and an anticipated surge in demand fueled by an aging population. The 75-plus population is forecasted to grow by a whopping 44 percent in the next 10 years, compared to just 5 percent overall population growth. When it comes to specific investment opportunities, the survey found assisted living stands out as the most sought-after senior housing subsector, reaffirming its leading position from the year prior. Memory care and independent living follow suit, with investors clearly targeting subsectors that offer strong growth prospects and align with the demographic pull of the aging Baby Boomer population.

With transaction volumes experiencing a slowdown due to elevated interest rates, private buyers are notably more active, leveraging the less competitive landscape to capitalize on opportunities. Amidst the backdrop of an increased interest rate environment, capitalization rates have expanded, leading to a broader market repricing. However, there is a growing consensus among investors that interest rates have reached their peak, bringing a more stable outlook for security pricing. The underwriting processes reflect a careful evaluation, with respondents in the JLL survey indicating an average spread of 262 basis points between cap rates and unlevered internal rates of return for a 7-year hold.

Buyer beware

While there’s a bullish outlook on investments, not all is without concern. The survey indicates that the availability of financing remains a top concern for 44 percent of respondents, with a further 35 percent wary of capital market and interest rate volatility potentially hampering the sector’s prospects.

A notable trend is the growing appetite for alternative investment sectors, with senior housing leading the pack alongside student housing and medical offices. These sectors collectively reflect a growing share of investment volume, from 8.4 percent to 13.1 percent over the past decade, signaling a strategic pivot by capital towards niche markets with compelling demand narratives.

As the senior housing and care sector continues its recovery, leveraging demographic trends and market fundamentals, investors remain vigilant but engaged. They adapt to new interest rate climates while positioning for what is becoming an increasingly attractive investment environment, shaped by robust demand and the ensuing opportunities of a stabilized pricing floor.

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