Investors Favor Independent Living, Fret Over Operating Costs

Independent living is still holding the most allure for senior housing investors amid robust interest in the industry as a whole. The “active adult” sector, which targets younger seniors, is also gaining luster, while interest has diminished in the more needs-based area of memory care.

That’s the latest from the winter 2018 U.S. Seniors Housing & Care Investor Survey Update from commercial real estate services and investment firm CBRE (NYSE: CBG). The survey included responses from a mix of 75 industry movers and shakers, including brokers, institutional investors and REITs/developers.

Perhaps the biggest takeaway from the latest survey is interest among senior housing investors remains strong, with 60% of respondents reporting they expect to increase the size of their portfolios in 2018. The pace of senior acquisitions in 2017 was fairly steady, with acquisitions totaling $13 billion through last October—an 8.6% increase from the same period the year prior, according to data from Real Capital Analytics.


Opportunity and obstacles

One property type investors appear to be continually interested in is independent living, with 36% of the survey’s respondents identifying it as the “best investment opportunity.” That number is slightly down from spring, 2017, when 40% of surveyed investors said the property type presented the best opportunity.

Interest in assisted living ticked up slightly from previous surveys, on the other hand, with 23% of investors identifying it as most appealing, while nursing care and active adult interest also trended upward to 17% and 13%, respectively.


Investors were less interested in memory care properties, which fell to just 6% of investors identifying it as the best investment opportunity in the winter of 2018, which is down from 8% last spring. CCRCs came in last, with just 6% of investors seeing those properties as the best targets.

Worries over increased property-level operating and development costs drove 35% of respondents to list it as their biggest concern for the year ahead, beating out increased construction activity (30%) and rising interest rates (12%).

Just 10% of the investors saw increased competition for acquisitions and capital placement as a top concern, and even fewer investors lost sleep over negative economic conditions (6%) or regulations (4%).

Only 3% of the surveyed investors said they had no concerns.

Looking ahead

On the whole, the latest CBRE report painted a strong outlook for senior housing investment over the next 12 months. While oversupply will continue to be a problem in 2018, construction activity is expected to moderate this year, potentially setting the stage for a “notable improvement in market fundamentals in 2019,” the firm said.

Occupancy rates for independent living communities are expected to level out this year, but such improvement may lie further out for those that provide assisted living and memory care services, the firm predicted.

“For the most part, the traditional segments of seniors housing—independent living, assisted living, memory care and nursing care—will not yet benefit from the aging baby boomer population,” CBRE wrote in the report. “Yet the emerging active adult segment will continue to attract new demand from baby boomers in the near term.”

Written by Tim Regan

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