Will Senior Housing Investment Surpass 2018 Volumes?

Senior housing investment appetite is continuing to grow alongside the daily growing demographic of people aged 65 and older. As the demographic grows, there is increasing demand for quality senior living facilities—with a need for everything from active lifestyle communities to assisted living and nursing facilities. Last year, senior housing racked up an impressive $15.2 billion in investment volumes in the US, and this year, experts expect the market to perform equally as well or even potentially surpass last year’s activity.

Real Capital Markets recently completed an investor sentiment survey for senior housing investment over the next year. “A strong majority [of investors] believes activity levels will match or even surpass 2018 levels that reached $15.2 billion in sales, a statistic provided by Real Capital Analytics,” Tina Lichens, COO at Real Capital Markets, tells GlobeSt.com.

In addition to the growing senior demographic, the senior housing model has also evolved, creating investment opportunities, particularly for redevelopment and new construction. ‘One of the common themes we’re seeing across many CRE sectors in 2019 is the ‘redefining of the new normal,” says Lichens. “That theme is true of the senior housing sector as well.”

Senior housing investment had a record year in 2015, and while investors are bullish on the market, 2019 investment volumes will likely pale in comparison—as have the years since. However, the activity, while not record breaking, is strong and competition for assets continues to put upward pressure on pricing. “While overall volume may be less, especially when compared to 2015 when the market reached its highest level of activity in the last five years, we’ll continue to see stable, well-capitalized assets attract attention,” says Lichens. “For the top tier properties—the newest properties in markets where there are strong barriers to access—that attention and competition will likely lead to investors bidding up prices.”

The run-up in senior housing set in about five years ago when the demographic pattern started to emerge and investors saw the strong return potential. Today, those benefits still exist and remain the primary drivers of activity. “Senior housing properties have been a consistent choice among private equity investors over the last five years in part because, on a comparative basis they have produced the higher yield opportunities that this investor group has sought—in contrast to office, industrial and multifamily properties,” says Lichens. “During that time, we have seen yield spreads for senior housing tighten when compared to those alternative investments. While this buyer category will continue to be a dominant force, we’ll likely see greater levels of competition and tighter pricing, especially for class-A product.”