Senior Housing’s Next Wave of Investment Opportunity
Why this resilient sector is recovering from its downturn—and where to find the next surge of potential.
After serious setbacks during the pandemic, senior housing investors and developers must craft strategy in the face of formidable new hurdles.
Rising operating costs, a shortage of skilled professionals, staff burnout and other problems are still front and center. When those challenges are combined with other issues ranging from rising construction costs, infection control measures and a spike in insurance premiums, senior housing investors are contending with powerful headwinds.
But though these conditions are demanding a reset, they do not undermine the fundamental factors that favor the sector. Leading those factors is demographics. Residents typically move into senior housing facilities after they turn 80, according to one study, and the number of 80-year-olds in the U.S. will boom from 13.2 million in 2020 to more than 23 million in 2034.
The real estate capital markets grasp this long-term potential, as evidenced by a 45 percent uptick in construction loans from the first to third quarters of 2021. On the investment side, transactions quickly started rebounding in 2021 and tallied a 55 percent year-over-year increase.
And the rebound is unfolding quickly. From the fourth quarter of 2021 to the first quarter of 2022, occupancy at independent living and assisted living communities rose a combined 20 basis points, according to a study by the National Investment Center for Seniors Housing & Care. A combination of pent-up demand and a slowed construction pipeline boosted absorption at an annualized pace of 5.1 percent during the first quarter. As recently as the second quarter of 2021, absorption rose only 0.2 percent.
