Senior living rental rents have been climbing at roughly double their pre-pandemic pace, increasing by about 6% to 6.7% year-over-year, depending on care type. Yet, senior living communities have become more affordable relative to some other residential options.
That’s according to a recently released report on national senior housing trends for the second half of 2023, compiled by Marcus & Millichap.
“For older adults who may be considering downsizing into a smaller house, the rapid elevation in mortgage rates over the past 19 months has notably increased ownership costs,” the report authors wrote. “The typical mortgage payment on a median priced home has risen to $3,115 as of September, roughly $700 shy of the mean rent in an independent living community. Before the pandemic, that gap was more than twice as wide.”
As a result of these shifting cost dynamics, more older adults might be compelled to move directly into a senior living community rather than first downsizing from their single-family home, the authors postulated.
This would further bolster the sector’s recovery, which has been driven by a “remarkable turnaround in demand,” they wrote. In the 10 quarters between April 2021 and September 2023, 103,000 senior housing units were absorbed on net. This outpaces the absorption rate for the 10 quarters prior to the Covid-19 public health crisis.
The strong demand is supporting the rent growth amid increasing occupancy rates, which are particularly strong for more needs-based settings. Memory care centers have exceeded their 2019 occupancy levels.
Memory care also has seen the most dramatic pullback in new development, although groundbreakings have slowed notably across all senior housing property types. This trend is likely to continue, due to high capital costs, the report noted.
Meanwhile, transaction volume remained down through the first nine months of 2023, about 25% lower than was typical before the pandemic.
“Higher lending rates and stricter underwriting, fostered by tightening Federal Reserve monetary policy, have made it more difficult to close transactions,” the report authors wrote.
Still, larger and more well-capitalized investors can close deals, and the development headwinds have made acquisitions more appealing. Delinquency rates remained low to start 2023, the report noted, citing data from the National Investment Center for Seniors Housing & Care (NIC). Concerns over delinquency have increased, as interest rates have risen and operational challenges — particularly related to staffing — have continued.
But the report authors struck an overall positive tone, focused on the continued positive trajectory for the sector, fueled by strong demand.
Companies featured in this article:
Marcus and Millichap, National Investment Center for Senior Housing & Care
