Senior living’s dwindling development pipeline and improving operating performance are making competition tougher for acquisitions in 2026, even as rising asset prices lay the foundation for future development in the sector.
That’s according to the Walker & Dunlop 2026 senior housing outlook report. The report describes a senior living industry moving past recovery and into a “scarcity-driven cycle” driven by higher occupancy, stable rent growth and growing access to capital.
In the third quarter of 2026, the national occupancy rate for NIC primary markets was 90.4%, up from 89.8% in the second quarter. At the same time, rolling four-quarter construction starts totaled roughly 5,100 units compared with the long-term average of 15,600 units.
This imbalance is helping existing communities win revenue gains while attracting more institutional investors to the sector. The report cites data showing $6.8 billion of senior housing transactions in the second quarter of 2026, a 44% increase from 2025. The rolling four-quarter volume totaled $32.2 billion, which is an increase of 74% year-over-year.
“Institutional capital is increasingly focused on the sector, creating opportunities for strong operators to attract investment, grow their platforms and establish new partnerships,” Tony Cassie, managing director of capital markets investment sales at Walker & Dunlop. At the same time, favorable operating fundamentals, including strong rate growth, improving occupancy and limited new supply, continue to support revenue growth and margin expansion.”
Cassie also emphasized that rising institutional participation will demand greater data transparency, bringing senior housing “closer to the level of market visibility already available across other commercial real estate asset classes.”
Real estate investment trusts (REITs) accounted for 36% of transactions in 2026, compared to 15% in 2023. Value-add, middle-market properties for sale typically generate five to 10 offers, whereas institutional-grade assets “can, and often do,” receive 10 or more offers. This is a “significant shift” from the past, the report notes.
“Resistance to historically high price-per-unit levels is also diminishing when asset quality, market position and operating upside support the investment thesis,” the Walker & Dunlop report authors wrote.
Increased construction costs are supporting a stronger buyer appetite as buyers can acquire high-quality communities below replacement cost in most markets, while a limited number of new communities supports higher rent growth underpinning investor return expectations.
Investors are accepting lower initial yields as they expect occupancy gains, rate increases and operating improvements will lead to stronger returns within the first year after a community trades hands. For these buyers, access to capital and past partnerships with strong operating partners can make the difference in a transaction working out or stalling before a deal is made.
“Owners with strong operating platforms, established operator relationships, substantial liquidity and an advantaged cost of capital can compete differently for opportunities,” the authors wrote.
Appeal for senior living transactions shows investor confidence in the sector’s long-term demand. In comments cited in the report, KKR Real Estate President and Partner Chris Lee said senior housing was the asset management company’s “highest conviction area over the past three years.”
The number of investors interested in senior living acquisitions is also growing, which is supporting broader investment activity. Banks, life insurance companies, agency lenders, alternative asset managers and other capital providers are competing for assets today.
The report notes that senior housing frequently offers positive leverage, meaning that borrowing costs are below starting yields and debt can improve returns from the beginning. While some institutional buyers are seeking more complex turnaround opportunities, a large portion are seeking out communities they can buy with cash and later add debt.
Even as the investor pool widens, it doesn’t eliminate the negative impacts of rising interest rates. Higher borrowing costs can reduce loan proceeds and impact pricing expectations of buyers that could create near-term challenges in senior living mergers and acquisitions, the report said.
Cassie expects positive operational momentum to carry forward despite wider economic headwinds.
“We expect that momentum to continue into 2027, with limited new supply supporting further occupancy gains, pricing power and margin growth,” Cassie said. “While investor appetite remains strong and pricing may continue to stabilize, broader capital markets volatility could create friction and potentially limit transaction volume. Overall, we expect 2027 to look similar to 2026, with sustained operating improvement and strong institutional interest in the sector.”
Improving operations at the community level is also helping to fuel investor demand for senior living. Rent growth reached 4.7% in the second quarter of 2026, and that figure has exceeded 4% year-over-year for 17 consecutive quarters, the report notes. REITs including Welltower, Ventas, Janus Living and American Healthcare REIT have reported double-digit same-store senior housing net operating income growth in the second quarter, according to the report.
Operating performance gains are not guaranteed, however. Revenue management, staffing, resident acquisition and retention of staff, along with daily operations, impact whether a community meets expectations.
“As acquisition competition increases, investors paying aggressively for high-quality assets need confidence in the operating plan required to grow into their basis,” the report’s authors wrote.
Even as supply constraints benefit existing owners, those same fundamentals are starting to change the economics around new development. Development in high-end private-pay markets where rents can support higher costs, alongside middle- to upper-middle-market projects in secondary and tertiary locations, is possible today through efficient design and amenities that can help keep operating costs down.
Equity remains more skittish than lenders, and local demand, attainable rental rates, sponsor quality and operator alignment will help shape development in the future, the report said. Challenges around rising operating expenses and affordability concerns also remain, as continued rent growth, labor costs, capital needs and financing could complicate buyer assumptions about future net operating income (NOI) growth.
Looking ahead to 2027, Walker & Dunlop expects acquisitions to remain the dominant avenue for capital deployment, even as developers look for viable ground-up projects.
“We expect M&A to remain the primary driver of activity in 2027, supported by significant capital pursuing existing assets and increased competition for value-add opportunities,” said Nick Hall, director of capital markets investment sales at Walker & Dunlop. “Recapitalizations of mid- to large-scale regional operators could also become more prominent as investors look to support platform growth and further acquisitions.”
Hall added that interest in new development is increasing as acquisition pricing approaches replacement costs and limited new supply opens doors in select markets.
“We expect development capital to be deployed selectively with experienced developers, while interest rates, construction costs and staffing challenges will influence the pace of activity,” Hall said. “Overall, M&A should remain active, with new development gaining momentum in markets where fundamentals support the investment.”
The report’s authors do not expect a construction wave like those seen in 2017 or 2018, and project timelines will continue to take longer to deliver new supply. In the meantime, existing owners remain well-positioned to benefit from limited competition, while investors seeking new supply must weigh whether or not to take on construction risk.
“The strongest opportunities in the next phase of the cycle are likely to favor investors that pair informed capital with disciplined operating execution,” the report’s authors wrote.
Companies featured in this article:
