CHICAGO – JLL Valuation Advisory released its fourth annual Seniors Housing Investor Survey and Outlook, which shows that, although the sector still faces challenges, seniors housing is on a trajectory to grow due to long-term demand remaining positive, as an aging baby boomer population faces a growing need for care.
As the seniors housing and nursing care sector navigates its way through the current pandemic, JLL Valuation Advisory anticipates the sector facing its strongest demand ever. Construction delays from the pandemic will magnify the long-term supply shortage, and, with the baby boomers within approximately 10 years of occupancy, medium and long-term investment remains positive. Additionally, the need to serve the middle-income population will continue to grow, resulting from the global impact of COVID-19.
“Investors remain bullish on seniors housing and care investments,” said JLL Managing Director Zach Bowyer, MAI, Head of Alternatives Asset Sectors, Valuation Advisory. “We anticipate market fundamentals to steadily improve and the market to re-stabilize between two and four years, depending on the location.”
The seniors housing and nursing care sector had one of its strongest years for transactions in 2019, and 2020 was shaping up to be another solid year for the sector before COVID hit. Despite seniors housing and care transaction volume falling 48 percent year-over-year to $9.2 billion in 2020, 53% of respondents reported they plan to increase their exposure to the sector in 2021.
The survey also revealed that, after a trend toward more lifestyle-focused segments of seniors housing, participants are moving to more traditional and need-driven segments, with 37% of respondents identifying assisted living as the most sought-after investment opportunity in 2021.
Additionally, despite the disruption, available capital for commercial real estate investment remains near all-time highs, with the seniors housing and care sector noticing a significant increase in the percentage of private capital placement.
“Dry powder for commercial real estate investments are at an all-time high,” added JLL Managing Director Bryan Lockard, MAI, Co-Lead for the Seniors Housing Practice, Valuation Advisory. “Investors are being cautiously selective, as short-term and long-term uncertainty remains for most sectors, with confidence increasing from a successful vaccine rollout within seniors housing communities and declining infection rates.”
Seniors housing valuations dropped to an eight-year low, with an average price per unit of $141,800 reported for 2020, down 16% year-over-year, and the average capitalization rates for seniors housing transactions increased year-over-year by 50 basis points to 6.5% after reaching an all-time low of 5.9% in 2019. Additionally, after four consecutive years of declines, the average price per bed for nursing homes increased by nearly 20% to $88,600 in 2020, marking the second highest annual price point for nursing homes on record.
“It’s important to note that the long-term demographic tailwinds for the sector continue to be intact,” added JLL Managing Director Brian Chandler, MAI, CRE, Co-Lead for the Seniors Housing Practice, Valuation Advisory. “Many transactions in 2020 represented liquidation events since owners who are well-capitalized opted to hold and operate through the pandemic with expectations of a rebound in valuations.”
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