The total cost of a senior housing development delivered in 2017 or scheduled for delivery in 2018 averaged $256,000 per unit, or $283 per square foot—and those figures are expected to rise next year.
That’s according to the inaugural U.S. Seniors Housing Development Costs Report from commercial real estate services and investment firm CBRE (NYSE: CBG). The report breaks down the average development costs of new senior living properties, and is based on valuations of more than 1,500 independent living, assisted living, and memory care communities in 2017.
Before the report—which CBRE believes is the first of its kind in the seniors housing sector—developers did know that costs were rising.
“All the costs certainly have been going up, and that’s a major theme of the sector,” Jeanette Rice, Americas head of multifamily research at CBRE, told Senior Housing News.
Development cost breakdown
On average, hard costs comprised 66% of the development costs for seniors housing properties delivered in 2017 or scheduled for delivery in 2018, the analysis revealed. Soft costs, meanwhile, accounted for 22% of the development costs.
Site costs, on average, represented 11% of development costs, while furniture, fixtures and equipment (FF&E) costs represented 3%.
Looking ahead to 2018
It’s likely that senior housing development will remain active in 2018, according to CBRE—but development costs will likely increase as well.
“We do expect development costs to continue to rise,” Rice said. “We know that they are trending that way.”
Labor expenses will be a major contributing factor in the climbing development costs, Rice added, noting that the costs of land and materials will also probably rise.
“The amount of [senior housing] development [in 2018] will actually be less, and so will starts, so that may take some of the pressure off land prices, but we still expect land prices to rise,” Rice said.
Written by Mary Kate Nelson