Commodity pricing and construction labor wage increases are leveling off — but don’t expect an uptick in new senior living projects or a decrease in overall pricing in 2023.
That’s according to a new Senior Living Construction Costs report from construction firm Weitz Company.
The cost of building new independent living and assisted living communities increased in early 2023, and confidence in the construction industry has dipped.
“The overall construction market is expected to contract 6% this year, but there is a shift in sector spending,” the report’s authors wrote. “Warehousing, data centers, and infrastructure volumes are expected to grow, while residential and commercial will see lower volumes in 2023.”
They added: “Contractor backlogs are still very strong, and based on all of these variables, contractors will move to different sectors to maintain full pipelines.”
But, as the construction market is expected to contract, the Weitz report also showed that inflation on building material could level off in the next three years. The cost of asphalt paving, reinforcement bars, fabricated pipe, sheet-metal, structural steel, plywood and lumber are expected to see negative cost growth as soon as this year.
For senior living developers, the cost per gross square foot shot up from June 2022, according to data published by Weitz.
For a mid-level independent living community, the gross cost per square foot range is $227 to $273, up from a range of $196 to $236 last summer, according to the report. Meanwhile, high-level independent living costs came in at between $265 and $345, up from $229 to $298 last year.
Mid-level assisted living costs between $263 and $535 while high-level AL costs between $344 and $429 per gross square foot, according to the report. That’s compared with a mid-level range of $226 and $304 and a high-level range of $297 and $369 last year.
Data published in the report also showed that 64% of construction executives predict a slowdown in the first six months of 2023.
Still, there is some reason for optimism. The Engineering News Record (ENR) reported that the building cost index and the materials cost index are both forecast to grow at a significantly slower rate in 2023 than they did in 2022.
The ENR building cost index is expected to grow 3.8% this year after 9.4% growth in 2022 and the materials cost index is expected to grow 1.3% after 18.6% growth in 2022.
Senior living developers have been navigating the tightened lending environment since last year, as investors in the industry turn to acquisitions to grow.
A tepid construction market could result in higher demand from prospective residents in some markets, as there will be fewer new units to fill at a time, according to National Investment Center for Seniors Housing & Care Senior Principal Caroline Clapp.
“The demand for senior housing is still there, the fundamentals are positive and construction is very limited,” Clapp told Senior Housing News. “So we think that assisted living [occupancy] will continue to improve as you see the demand continue.”
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