Lately, luxury seniors housing is all the rage—among developers, real estate investment trusts (REITs) and baby boomers alike, experts say.
“It’s fair to say that luxury seniors housing is booming,” Mark Myers, an executive director at Institutional Property Advisors (IPA), tells Senior Housing News. IPA is a division of national brokerage firm Marcus & Millichap, which specializes in serving institutional and major private real estate investors.
Currently, construction is booming in the seniors housing segment, and “luxury assisted living and independent living communities are leading the charge,” according to Marcus & Millichap’s recently released National Seniors Housing Research Report for the second half of 2016.
Developers’ focus on luxury senior housing is due in large part to the fact that millions of baby boomers are getting older every day—and they have a lot of money to spend, Myers explains.
“It’s an indication of the kind of wealth seniors hold,” Myers says. “There’s about $3 trillion of net worth that’s being held by baby boomers. Essentially, seniors have a lot of money—not all of them, not many of them, but those that do have money have a lot.”
Boomers will spend the money to live luxuriously, he adds.
“If you provide what they want, they’ll pay for it,” Myers says. “If they have a million or a couple million dollars in liquid assets, they have enough assets to pay for a very luxurious last few years of their life, and they want to enjoy the last few years.”
REITs, meanwhile, are currently “chasing luxury units,” which comprise a large share of seniors housing projects coming online and are trading at initial yields in the 6% to 6.5% range in primary markets, the report says. In secondary locations, luxury units also trend upward of 100 basis points, the report notes.
“Quality always sells,” Myers explains. “Somebody’s going to buy that asset at a very high premium.”
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And, even though a major share of luxury seniors housing construction is occurring in 10 primary markets, these markets have a history of stable economic outlooks and strong absorption trends, easing any concerns of possible overbuilding, the report explains.
By the end of 2016, the average rent for independent living units will rise 3% percent year-over-year, surpassing $3,000 per month for the first time, the report says. Meanwhile, independent living occupancy will hit 91.7% by the end of 2016, holding firm from the rate recorded at the end of 2015 as supply-side pressure increases in some markets.
In assisted living, the average rent continues to increase at a vigorous pace, despite downward pressure on occupancy and elevated completions, the report says. Over the past 12 months, the average rent rose 2.7% to $4,401 per month. Luxury assisted living projects coming online in upcoming months will keep rent increases at a heightened pace, the report says.
Even with luxury seniors housing construction booming, there seems to be a large middle-market population that has senior housing companies scrambling for the right formula for a more affordable offering.
Written by Mary Kate Nelson