Real estate developers and investors are seeking to establish themselves in the seniors housing sector to take advantage of the “silver tsunami” of baby boomers set to enter the seniors housing market over the next decade. According to JLL’s Mid-Year 2018 Seniors Housing Investor Survey, 57 percent of respondents indicated seniors housing cap rates will compress relative to other asset types, a sign that the sector is drawing investment and competition for product is heating up.
Despite new supply depressing occupancy and a slight decrease in transaction volume year-over-year, seniors housing is being boosted by strong demographic tailwinds. According to the U.S. Census Bureau, by 2035 all baby boomers will be over the age of 65 and the 65-plus population will outnumber the population under age 18 for the first time in U.S. history.
“It’s clear that many investors are recognizing the long-term potential of the seniors housing sector, and are seeking to establish a presence in the sector now, even though boomers will not start hitting 80 until 2026,” said Charles Bissell, managing director with JLL. “The market continues to become more mainstream as developers choose strategic infill locations that appeal to a wider swath of potential investors.”
Independent and assisted living facilities continued to be the most sought-after assets with 72 percent of respondents saying they were very or extremely desirable. Free standing independent living facilities were respondents’ second favorite with 58 percent ranking them as very or extremely desirable. Freestanding nursing care facilities and entry-fee CCRCs ranked last with 71 percent and 66 percent of respondents ranking them as not so or not at all desirable, respectively.
“There has been a clear shift in preference to assets that provide the age-in-place experience for residents and to seniors-only apartments because of the convenience and cost benefit to the adult children who inevitably make housing decisions,” said Lisa Strope, director of research for JLL.
Seniors-only apartments and age-in-place seniors housing (any combination of independent living, assisted living and memory care) are turning investor heads for their rising values. Sixty one percent of respondents and 38.6 percent of respondents said they believe seniors-only apartment and seniors housing assets will see modest to significant value increases over the next 12 months, respectively.
These assets are also proving to be extremely liquid on the market. Sixty eight percent of respondents said it took six months or less to complete the sales cycle for age-in-place seniors housing assets while 83 percent said it took that much time to sell seniors-only apartments.
“The largest impact from the baby boomers’ demand is still about eight years away, but we expect seniors housing to continue to experience significant growth through that time, especially as the sector becomes more transparent and diverse in its investor base,” said Allison Holland, JLL managing director.
