The ongoing economic rebound in the United States should fuel growth in the senior housing sector through the remainder of 2015, and independent living and continuing care retirement communities are set to lead the way in terms of occupancy. That’s according to a recently released report from real estate investment, financing and research firm Marcus & Millichap.
Rising home prices are encouraging seniors to sell and relocate to age-restricted housing, particularly with active lifestyle amenities such as golf courses, tennis courts and pools, the Seniors Housing Research Report Second Half 2015 states. The improving job market also is good news for the sector, as more money in consumers’ pockets takes pressure off revenue streams coming from the government.
In terms of how investors are viewing the senior housing market, general improvements in the real estate sector and continued low interest rates are a positive. Independent living properties continue to be popular, and patio homes and duplexes also are emerging as top investment prospects, according to the report.
There also is an increase in investment activity in the assisted living sector, with cap rates hovering around 6.5% to 7.5% for top-quality properties, with Class B or B-minus assets producing yields in the 8% range. Agency debt financing remains the top pick for investors, due to low interest rates and non-recourse structures.
Utilizing data from the National Investment Center for Senior Housing & Care (NIC) as well as from Marcus & Millichap Research Services and a variety of other sources, the report breaks down each senior living sector and predicts occupancy levels and rent growth through the end of the year. Independent living leads the pack, with occupancy predicted to reach 92.3% in 2015, up 70 basis points from a year prior. Average rent is predicted to grow 3%, reaching $2,923 per unit.
CCRCs follow, with occupancy predicted to increase 30 basis points year-over-year, hitting 91.2%. Rent growth of 2.5% is anticipated, bringing that number to $3,002 per month.
Concerns about potential oversupply, particularly in assisted living properties, were driven by NIC data released earlier this year. But Marcus & Millichap analysts are relatively dismissive of this issue, taking a long-term view.
“As those in this [50-plus] age tranche near retirement and desire the range of services provided by senior communities, demand will rise and stifle concerns over potential overbuilding,” they write.
While they note some downward pressure on AL occupancy due to deliveries this year, they predict only a “minimal effect on national occupancy.” The forecast is for a 20 basis-point occupancy gain for the year, to 91.4%. Rent growth of 2.3% is anticipated, to bring that figure to $4,293 a month.
Analysts with NIC and others in the industry have repeatedly emphasized that oversupply concerns are acute in some markets while not an issue in others. Marcus & Millichap identified Texas, Florida and Ohio as the states with the most senior housing units currently under construction—more with than 3,000 being built in each state.
There are twelve states identified as having 1,000 to 1,999 projects underway, including California, Minnesota, Illinois, Georgia, Virginia and Pennsylvania.
Read the complete report.
Written by Tim Mullaney