CHICAGO– Despite pricing uncertainties limiting capital markets activity, interest in seniors housing remains optimistic as investors seek higher yields from alternative asset classes, according to JLL’s Valuation Advisory group’s sixth annual Seniors Housing Investor Survey and Outlook.
Of the investors surveyed, 44% indicated they would increase their exposure to seniors housing in 2023, and 44% indicated they would make no change to their current investments. Only 12% of surveyed investors indicated they would decrease their exposure in 2023. Investors are more bullish on the assisted living and skilled nursing segments of the sector this year, with 31% of respondents indicating they would invest in assisted living up from 28% in 2022 and 26% of investors interested in skilled nursing, up from 17% the prior year.
“While there are certainly challenges in the current capital markets, the underlying fundamentals of the seniors housing sector remain strong,” said JLL Managing Director Brian Chandler, MAI, CRE, Co-Lead for the Seniors Housing Practice, Valuation Advisory. “We’ve seen rising occupancy rates, rising rents and a very muted construction pipeline, which will drive demand through 2023 and beyond.”
Key takeaways from the report include:
- Occupancy recovery fueled by healthy demand and delayed inventory growth
- Stabilized occupancy reached a historic low of 80.3% across primary markets post-COVID. Since then, occupancy has risen to 84.4% in primary markets and up 5% in secondary markets to 85.9%. While it is still lagging from the peaks seen before the pandemic, Q4 2022 marked the seventh quarter in a row for positive absorption. Inversely, inventory growth has fallen 41% on average in the same time periods.
- Private capital takes on an increasing share of investment
- As institutional investors and core funds pull back in most sectors, private capital has taken an increasing share with developers and owners seeking to enter the seniors housing space. Strong demographic tailwinds continue to drive demand and higher yields than other core asset classes drive investor demand.
- Rent in seniors housing facilities has been steadily increasing, with annual rent growth picking up across 2022
- Prior to the pandemic, seniors housing rents had been steadily increasing around 2% to 3%. After eight quarters of declining growth, the pace of rent growth accelerated through 2022 up 4.9% on an annual basis, compared to 1.5% at the beginning of 2021.
- Low historical growth of seniors housing in some Sunbelt markets presents opportunity
- Of the fastest 30 metros with more than 100,000 residents aged 75-plus, 27 of these are in the Sunbelt. However, the rate of growth for seniors housing has varied, with some markets, including El Paso, Texas and select Florida markets, seeing limited growth over the past decade presenting a potential opportunity to increase the rate of growth of seniors housing to match the project population growth.
“The 80-plus population in the U.S. is expected to grow by more than 50% in the coming decade compared to the overall population growing just 4.7%,” noted JLL Managing Director Bryan Lockard, MRICS, Co-Lead for the Seniors Housing Practice, Valuation Advisory. “This underscores the enormous wave of pending demand for additional seniors housing and nursing care facilities providing ample opportunity for developers, owners and investors in the sector long-term.”
JLL Valuation Advisory is the essential guide to the changing face of real estate values and risk. The team brings together unrivalled human intelligence and experience, with continuous, data-driven insights to uncover a panoramic view of value and risk across sectors and geographies.
JLL’s 2,000 qualified valuation professionals are connected across more than 50 countries, sharing insights and real-time data to advise on changing market dynamics and trends before they happen. A global community of sector-based specialists, the team delivers tailored client solutions for your real estate and business asset interests, giving an accurate picture of value and risk across any opportunity.
U.S. property valuation and tax consulting services are performed by JLL Valuation & Advisory Services, LLC, a wholly owned indirect subsidiary of Jones Lang LaSalle Incorporated.
