Economy Watch: Senior Housing Enjoys Strong Returns, But Also A Few Jitters

The senior housing sector continues to outperform other asset classes, despite decreased investor interest in the property type in the first half of 2016.
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Senior housing continues to outperform other asset classes, posting total returns at 16.1 percent, 17 percent, and 15.3 percent over one-, three- and five-year periods, respectively, according to the recently released CBRE Seniors Housing & Care Investor Survey. Those totals are more than any other asset class for each period.

Investor interest in the property type slowed down during the first half of 2016, however, following a broader pattern of CRE investor jitters. Transaction volume in U.S. senior housing dropped to $6.7 billion in the first half of 2016, compared with $13.5 billion in the first half of 2015. Much of the decline in volume was due to a drop in deals by public REITs.

Coupled with the increase in the percentage of investors expecting no change in their exposure to senior housing over the next 12 months, there’s been an increase in market uncertainty or a “wait and see” market environment, the report notes. One reason is because there’s been downward pressure on occupancies recently.

Senior housing occupancy declined to 90.7 percent and absorption rates declined to 2.3 percent from the beginning of the year, as new supply is introduced to the market, the report explained. Nursing care occupancy declined to 87.1 percent—its lowest rate in the past 10 years.

The survey also found that total multifamily returns were second after senior housing, at 12 percent, 10.9 percent, and 11.9 percent over the same one-, three- and five-year periods. Also, the NCREIF Property Index (NPI) consisting of core institutional property markets in the U.S. averaged 13.3 percent, 12.0 percent, and 12.2 percent returns over the same periods.