Senior Living Fundamentals Continue to Improve as Industry Sees ‘Great Recalibration’

Senior living industry fundamentals continue to look better as new construction stays low and operations continue to improve, but certain headwinds and uncertainties remain.

That’s according to Zach Bowyer, Cushman and Wakefield senior managing director, following the release of the latest investor survey and trends report.

“We all know the current interest rate environment is having an impact on all asset classes of commercial real estate, some more than others,” Bowyer told Senior Housing News. “What’s unique about seniors housing right now is while we have the challenges on the debt side, on the capital market side, the property market fundamentals are probably stronger than we’ve ever seen them.”


Those and other findings were included in the latest Cushman and Wakefield report, which included responses from more than 90 senior housing investors.

“The seniors housing and care sector is amid the ‘Great Recalibration,’ as various crosscurrents affect investor sentiment and strategy,” the report’s authors wrote. “Property market performance continues to accelerate in most U.S. markets, with construction starts at a near standstill.”

Stabilized occupancy has been on an upward trend for the past 10 quarters, and rent growth maintained at 5% for 3Q23. According to the report, annual rent growth hit a record high at 5.9% in both primary and secondary markets in the second quarter but tapered a bit in the third quarter at 5.4% and 5.6%. Assisted living saw the highest rent growth at 6.4%, with independent living average 5.4%.


Alongside this, net absorption is “the highest it’s ever been,” with nine consecutive quarters of outpacing inventory, hitting 4.3% in primary markets and 3.9% in secondary markets, which the report notes is “well above” historical averages.

“Northeast markets are expected to show the strongest near-term performance,” the report’s authors noted. “Markets in the Southwest and Southeast are expected to experience downward pressure on occupancy and rent growth in the near term as new supply is introduced.”

The average price per unit has trended down to $110,000 in 2Q23, a decrease of 54% from the peak pricing in 1Q22. Transaction volume was also on the decrease at $400 million, with the report noting this is the lowest seen since the “Great Financial Crisis.”

The report also notes that construction starts have slowed dramatically as well, and in order to meet demand, supply growth needs to increase 35,000 units per year starting immediately. The industry’s ability to fill this supply is unlikely, Bowyer said, with the average being around 26,000 units per year over the last five years.

The long-term demand is also “expected to overwhelm” the market within the next five years, with net demand projected to be positive as early as 2025.

Alongside this, affordability still remains an issue for the industry, with the middle-income senior expected to double in population by 2029. The incoming population is expected to see an increased need for mobility services, and 20% of them are going to require higher healthcare and functional needs.

Even in California alone, that total population is anticipated to be 1.6 million residents by 2033, with 90% struggling to afford private pay assisted living rates.

Additionally, the report indicates there are $16 billion in loan maturities coming due over the next two years, which will “catalyze transaction activity” with increased investments for those with the capital who are less reliant on leverage.

As a whole, Bowyer said he is anticipating operations to improve for senior housing operators.

“We’ll see occupancy levels continue to go up, operators will continue to find ways to reduce operating expenses, we’re already starting to see that on a macro level throughout the properties that we’re valuing” Bowyer said. “It’s just right now that the cost of capital, I think those interest rates will continue to put some downward pressure on valuations in the near term.”

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