Senior Housing Investors Expect Flat Cap Rates Over Next Year

More than half of senior housing investors, developers and brokers expect cap rates will remain flat over the next year compared to those who expect them to increase, according to a CBRE First Half 2014 Cap Rate Survey.  

Surveying influential investors, developers and brokers in the senior housing space throughout the U.S., CBRE’s main objective is to identify trends in the healthcare real estate industry while also providing a snapshot of expectations and perceptions of what lies ahead. 

When asked their 12-month outlook for senior housing cap rates, 53% of participants said they expect no change over the next year. Conversely, 26% said they expect rates to increase, with 16% of which expecting an increase although at a slower pace than cap rates for other property types.


Senior housing cap rates have averaged a roughly 516-basis point spread to the 10-Year Treasury, CBRE notes, with the most recent indicated spread nearly equal to the historical average, at 517 basis points.

“This alone indicates too for further compression in the case of rising interest rates, with a bottom (or bubble) expected to fall when spreads are realized in the 350 to 400 basis point range,” writes CBRE. 

The professional mix of participants surveyed by CBRE was split, with 45% representing specialized investment or sales brokers and the balance identified as investors or brokers varying between representatives of public, private, institutional or other companies.


In terms of senior housing as a share of participants’ portfolios, 46% reported senior housing as comprising 100% of their investment portfolios while18% of respondents reporting greater than 75% of their overall portfolio. Additionally, 27% of respondents said senior housing represents more than half of their portfolio, while only 9% saying it represents less than a quarter of their portfolio overall.

Looking ahead, CBRE expects a “very strong” long-term outlook with prices to continue to appreciate in 2014.

“The industry’s fundamentals suggest the necessity for more capacity over the long-term with the possibility of short-term overbuilding in select markets,” CBRE states. “Given the economic climate and the corresponding operational results within the seniors housing industry, the sector will also continue to generate future organic operational efficiencies and attract new capital sources seeking higher yield.”

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Assuming the economic climate remains stabler, CBRE suggests recent transaction trends do not suggest a slowdown given the underlying market fundamentals that indicate a favorable long-term outlook. 

“Recent improvements in design trends and technological advancements will force the more dated product to reinvent their market position especially given the need for an affordable product,” CBRE writes. “Overall, market participants with sound de diligence and acute operational market understanding will continue to be successful in this space.” 

View the 2014 CBRE Cap Rate Survey.

Written by Jason Oliva

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