Investors, Developers Cool on Senior Housing as Covid-19 Pandemic Drags On

Last year, it looked as though senior housing would remain among the most attractive real estate prospects for investors and developers in 2020 — then came Covid-19.

No doubt spooked by a deadly disease that disproportionately affects older adults, investors and developers turned their attention to other property types when looking ahead to 2021, including fulfillment centers, warehouses, single-family rental properties and medical office buildings.

But while the senior housing industry is sure to face more tough months ahead, some of the pandemic’s challenges are already easing up, and demographic trends in the U.S. still favor the property type in the long run, according to the latest Emerging Trends in Real Estate report from PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI).


For the 2021 report, ULI and PwC researchers personally interviewed 1,350 people, and analyzed survey data from more than 1,600 respondents. A little more than half (55%) of the respondents worked with either a private property owner, commercial or multifamily real estate developer, real estate advisory or service firm. Another 12% worked with private-equity real estate investors.

Senior housing ranked as a “fair” investment and development prospect for the commercial and multifamily subsectors in 2021. The report’s respondents placed the property type as the No.13 investment prospect and the No. 10 development prospect. For residential property types, senior housing was a “fair” prospect for both investment and development in 2021, clocking in near the bottom of the pile for both categories, beating only multifamily condominiums.

That’s a far cry from last year, when the property type ranked the third-best development prospect and the fourth-best investment prospect for the commercial and multifamily subsectors, and the second-best prospect for both investment and development.


Much of that has to do with the Covid-19 pandemic, which has damaged occupancy and driven up expenses throughout the U.S. senior housing industry over the past eight months or so. The pandemic also injected uncertainty into the industry, which impacted senior housing values, pricing, and cap rates, pushing sales transaction volumes down sharply.

The average occupancy rate for senior housing properties dropped to a historic low of 84.9% in the second quarter of 2020 while the industry was in the midst of dealing with the global pandemic. A wave of negative headlines and bad press at the outset of the pandemic didn’t help the industry, either.

But senior living providers have gotten more of a handle on dealing with the pandemic in the months since, and there are signs that the industry is regaining the trust of consumers, investors and developers alike.

“Seniors housing took a pause on occupancy over the last eight months, and is now overcoming perceptions that the pandemic hits those facilities,” Byron Carlock, who leads PwC’s U.S. real estate practice, told Senior Housing News. “Safety concerns are subsiding.”

But the underlying fundamentals and drivers of senior housing remain in place. Pandemic or not, millions of baby boomers will reach retirement age in the coming years. And the fact that senior housing is a needs-based business should provide a “floor” to future occupancy declines, according to the report.

“Supply should be moderated by market and product mix between independent living and assisted living, as preferences for independent with access to health care seems to attitudinally have a preference over assisted,” Carlock said.

Still, the current challenges will likely lead to more changes for the senior housing industry, including dispositions, consolidation and mergers for some, and new development for others. And yet other investors may well continue to hold money on the sidelines while looking out for distressed deals in need of capital, recapitalizations or new partners.

As in previous years, the report listed the top 10 markets for overall real estate prospects in the year ahead:

1. Raleigh/Durham, North Carolina

2. Austin, Texas

3. Nashville, Tennessee

4. Dallas/Fort Worth

5. Charlotte, North Carolina

6. Tampa/St. Petersburg, Florida

7. Salt Lake City

8. Washington, D.C. and Northern Virginia

9. Boston

10. Long Island, New York

The report also grouped major metro areas into four main categories: “magnets,” “establishment markets,” “niche markets,” and “backbone markets.” These include many “histurbias,” a mashup term of “hipster” and “suburbia” used to describe stylish places that blend suburban and urban qualities.

“As the creative classes shift to these neighborhoods, many times you begin to see urban renewal around them — warehouses turned into apartments, art galleries, coffee shops, live music venues,” Carlock said Wednesday at Senior Housing News’ BUILD event, which is being held virtually this week. “And then developers begin to create rings around them, with townhomes and apartments and for-sale condos.”

Going forward, these areas — particularly those with parks and other open-air gathering places — still stand to be attractive locations for senior living, he said.

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