Investors Still See Active Adult as Top Opportunity as Senior Living Cap Rates Remain Elevated

Average senior housing capitalization rates have increased since last year, as active adult once again remains an attractive investment opportunity for favorable returns.

That’s according to The U.S. Seniors Housing & Care Investor Survey 2023 report’s 12th edition, which found that cap rates for independent living, assisted living and memory care properties increased by 28 basis points year-over-year, compared to 2022, with a greater increase for Class A assets than Class B properties and moreso for core markets than non-core markets.

Active adult communities led the top investor opportunity category of the report, with cap rates for the product type having increased 21 basis points compared with the same period in the year prior.


This comes as the sector was defined more clearly by the National Investment Center for Seniors Housing and Care (NIC) last year, and a swath of active adult projects continue to pop up nationwide.

Looking further ahead, CBRE Senior Director Matt Vance said there could be some relief on interest rates and cap rates in 2024.

“They won’t likely reach the aggressively low levels of 2021, but could come back to pre-pandemic trends over the next few years,” Vance said in an email to Senior Housing News.


Staffing remains a hot-button issue for many senior living operators, and difficulty in maintaining “adequate staffing levels” ranked as the report’s greatest headwind facing the industry this year, even as those headwinds appear to be moderating for some operators in certain instances.

Overall cap rate spreads between asset classes fell by 32 basis points, year-over-year, largely due to a 47-point decrease in cap rates between Class A and Class C properties. The spread between Class A and Class C Skilled Nursing assets fell by 101 basis points. That reduction, the report said, is a result from the higher cost of debt on the sector’s lowest yielding asset classes.

While active adult investment remains hot, investment confidence in independent living decreased significantly from last year, with only 13% of respondents selecting the asset class as the biggest opportunity for new investment this year, the report said.

Rental rates have also gone up, as operators have had to pass through rising costs to their residents via rental rate increases. The report found that active adult, independent living, assisted living and memory care properties had underwritten rental rate increases of 3% to 7% in the past 12 months.

More than three quarters of respondents expected rental rates to increase 3% or more over the next 12 months across all care types, excluding skilled nursing properties. Respondents said independent living and continuing care retirement communities (CCRCs) could see the biggest rental rate increases for the remainder of the year, and operators have not shied away from steep increases since 2021 to offset the lingering impacts from the Covid-19 pandemic.

“Higher borrowing costs and a constrained lending environment as the most significant threats to the seniors housing industry over the next 12 months,” the report’s authors wrote.

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