Senior Housing Investment Returns Continue to Slow

While senior housing has been lauded as an investment class with high returns and favorable demographics, the annual return for the sector has been slowing since mid-2014. That trend continued in the third quarter of 2016, new data revealed.

Despite the slowing rate of returns, senior housing has outpaced other real state asset types, as tracked by the National Council of Real Estate Investment Fiduciaries (NCREIF) Property Index (PI). The slowdown seen in senior housing has also occurred across the broader index.

Returns for senior housing properties reached 2.22%—0.80% capital return and 1.41% income return—during the third quarter of 2016, according to the index. The annual return through the third quarter was 13.11%, higher than the overall index’s 9.22% annual return and 8.46% reported for apartments.

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“Despite the relatively strong showing, the total annual return for seniors housing has been slowly trending down since the mid-2014 peak of 20.37%,” Beth Burnham Mace, chief economist for the National Investment Center for Seniors Housing & Care (NIC), wrote in a blog post on the findings.

During the third quarter, the annual appreciation return was 7.16%, which was the lowest return for a trailing four-quarter period since early 2013, the blog post noted. Income return was close to historic lows of just 5.66% for the quarter.

By comparison, senior housing returns were significantly outpacing other asset groups at the end of 2015. Senior housing returns exceed NPI and apartments by 400 basis points over a ten-year period.

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The performance was measured by the returns of 78 stabilized senior housing properties valued at $3.5 billion as of the third quarter of 2016.

Written by Amy Baxter

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