Survey: Investors Flock to Senior Housing, Dismiss Oversupply Worries

Fears of oversupply have driven the conversation around senior housing in recent weeks, but commercial real estate professionals still believe market fundamentals are strong and find senior housing to be a highly attractive investment, according to research findings released Thursday.

The research, conducted by the National Investment Center for Seniors Housing and Care (NIC) and the National Real Estate Investor (NREI), consists of 182 survey responses from commercial real estate investors in the organizations’ respective databases, gathered and tabulated to provide insight on the industry’s expectations for the sector.

Among those surveyed, 69% believe more senior housing construction is to come in the next year. Only about one-third of respondents believe this flurry of construction will result in overbuilding, according to the research. Last year’s survey also found one-third of respondents believed the sector was being overbuilt.

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Source: NREI
Source: NREI

Concerns about supply appear relatively low, as more than 70% of respondents believe that occupancy will actually rise in the next 12 months, calling for a mean 25.7 basis point increase. Still, that’s down from last year’s survey, which found 81% of respondents anticipated a rise in occupancy of the next 12 month period.

Data released in July showed declining occupancy, leading to chatter in the industry that supply might be outstripping demand.

The concern may not be entirely unjustified, but new supply is actually concentrated in a few select markets, according to NIC. The association said there are about 35 markets that contain about 80 percent of all senior housing construction activity in the United States.

Given the belief that the sector is fundamentally sound, coupled with optimism about continued access to capital, it’s perhaps not surprising that the research also shows an influx of buyers seeking out senior housing properties.

Groups that traditionally have cast their nets wide in commercial real estate are now honing in on senior housing, as Bridge Investment Group Holdings recently did through the $737 million investment fund raised by ROC Seniors Housing Fund Manager LLC. As such, 53% of survey respondents indicated they believe property sales transactions will increase during the next year.

With this flurry of activity in the market, competition proves fierce, with double-digit bidder pools on portfolio deals and single assets across the spectrum of senior housing and care properties, leaders with commercial real estate capital intermediary HFF told NREI.

The survey also touched on a variety of other indicators, including cap rates, capital sources and rent expectations.

  • Cap Rates: Almost half of the respondents predict that cap rates will increase within the next year, with the majority expecting them to rise by 50 basis points or less. The mean for all respondents who predict an increase is 15 basis points for cap rate growth.
  • Capital Sources: Respondents ranked REITs as the most significant source of debt capital, followed by Fannie/Freddie. Nine out of 10 investors said equity capital access will be the same or better over the next year, and 8 of 10 said that about debt capital.
  • Rent Expectations: A vast majority of respondents—84%—believe senior housing rents are going to increase over the next year by about 150 basis points.
Written by Kourtney Liepelt

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