Why Senior Housing Prospects Just Got Brighter
There's growing optimism in the market, according to a new CBRE survey.
Investors are growing more optimistic about the future of senior housing. Already propelled by secular backwinds, the sector is poised to improve further as cap rates continue their downward trajectory and rents are expected to rise.
A CBRE survey, now at its 16th installment, polled the same group of senior housing professionals, including private investors, brokers, developers, institutional investors and REITs. Major findings included the expectation that cap rates will contract and that rents are slated increase in the next 12 months.
Most respondents believe rents will improve by between 3 and 7 percent, while just 18.3 percent of professionals expect no changes on the horizon. No respondents forecasted rent contractions, but also none expect growth above 7 percent either.
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Drilling down, the largest consensus was for independent living rent growth, as almost two-thirds of respondents expect increases between 3 and 7 percent. There was also widespread agreement when it came to memory care and assisted living, with more than 55 percent expecting rises in the 3 to 7 percent band for both.
Of note, independent living facilities that came online between 2018 and 2021 are at the forefront of this prediction due to a shortage of supply—just 21,750 overall senior housing units were underway as of March—and rising costs, which likely prohibit newer communities from offering the same level of amenities and interior finishes.
Senior housing asset valuations looking up
The average senior housing cap rate was down 12 basis points compared to its reading six months ago—which was already 8 basis points down compared to the previous figure. These increases are likely to continue, as about two-thirds of respondents predicted further decrease over the next 12 months.
Independent living, on the overall, seems to record high investor demand. The average cap rate for the subsector dropped 20 basis points as of April compared to the October 2024 reading, which itself saw an 11-basis-point slide from six months prior. The cap rate for Class A assets in core markets clocked in at 5.8 percent, down from 5.9 percent half a year ago.
