Rising interest rates and compressed margins have some senior living investors bracing for higher cap rates in the coming year.
That’s according to the ninth annual investor sentiment survey from Wealth Management Real Estate (WMRE) and National Investment Center for Seniors Housing (NIC). The survey, released Monday, is based on responses from 208 participants who answered an online survey in June.
Nearly three-quarters of the respondents, 71%, said they expect cap rates to increase in the next 12 months, although they also said they expect a more modest uptick of 51 basis points. Just 18% of respondents said they believe cap rates will drop over the next year, and 11% said they expect no change in cap rates in that time.
The number of investors who believe cap rates will rise in the coming 12 months has steadily risen since 2014. Last year, 65.5% of investors said they expected cap rates to rise in the coming year. By comparison, just 28.1% of investors in 2014 said they expected cap rates to rise in the coming 12 months.
With rising interest rates, 53% of respondents said they believe debt capital will be harder to access in the next 12 months. Just one-third said they think access to equity capital will be harder to secure.
Anxiety over access to debt capital is lower now than it was in 2020, when 57% felt access would be harder to come by. Even so, the most recent finding (53%) is the second-highest level in the history of the nine-year survey, according to WMRE.
The expected rise in cap rates among investors is driven by higher inflation and expense pressure on net operating income (NOI).
Many senior living communities are still emerging from the effects of the Covid-19 pandemic, battling near-term challenges due to rising expense pressures as interest rates increase, and coping by increasing their resident fees as occupancy rises.
Senior living rates grew 3.3% in the first quarter of this year, and 93% of respondents said they think rates will continue to rise over the next 12 months. That is up from 87% who said they felt the same in the 2021 survey.
The survey’s entire research results will be highlighted in a webinar on Tuesday, July 19 with NIC Chief Operating Officer Chuck Harry and NIC Chief Economist Beth Mace.