Baby boomers are entering the age of retirement, causing demand for the senior housing market to spike. And with the sector at its highest peak in the past 20 years, senior housing is experiencing some growing pains.
Between 5 percent and 8 percent of people born between 1946 and 1964 — roughly 6 million — are in line to transition to senior apartments over the next two decades, according to a 2019 Senior Housing Survey by JLL.
There are currently 23,500 professionally managed senior housing and nursing care communities in the United States, according to CBRE. But there has been a slow down in development nationally.
The slowdown allows supply and demand to catch up due to the over development of projects, reported Marcus & Millichap in its first-half 2019 National Seniors Housing Research Report. The independent living segment of senior housing alone shot up by 8,400 units in 2018, down from the 12,100 units built the year before. Right now, developers have 24,000 units under way, representing 9.9 percent of existing inventory.
Both independent and assisted living developers are slowly pulling back on construction, the Marcus & Millichap report stated, a reflection of tighter lending and rising construction costs. Although development has been above unit demand on a macro level, the pace of occupancy erosion has slowed and will likely reach equilibrium this year. So what does that do to the market?
“In the last five years, I’ve seen a shift in terms of not only the amount of money but the type of investors coming into the space who historically viewed it as a niche market and are now seeing it as a major food group,” Bennett Johnson, a vice president at CBRE, said in a statement.
Investors are snapping up senior housing left and right. More than half — 62 percent — of investors were planning to boost senior housing in their portfolios, according to CBRE in its U.S. Seniors Housing & Care Investor Survey. And with investment returns of 14 percent, compared with 9.2 percent from multifamily, their pocketbooks are in the right place.
To counter the demand, housing arrangements are starting to get increasingly creative. Multigenerational living is one example. It seems the days of retiring to a segregated community in Florida are over — seniors want more excitement. Senior living spaces are starting to collaborate with colleges, known as “university-based retirement communities (UBRCs),” which were first developed in 2006 at George Mason University.
UBRCs keep senior residents physically and mentally active, and allow them to interact with other age groups in shared central community areas and provide more opportunities for recreation, fitness and even education.
Some of the nation’s highly recognizable academic institutions, such as the University of Notre Dame, Stanford University, Penn State University, University of Florida and Arizona State University have jumped on the bandwagon.
At Arizona State University, construction is under way for Mirabella at ASU, a 20-story, $250 million Life Plan Community scheduled to open on the corner of campus in 2020. The 300-plus resident community is already sold out. The University of Florida has another UBCR, called Oak Hammock. It offers events and classes, fitness facilities, and healthcare services.
University-based retirement communities are not the only trend for multigenerational living. In another arrangement, youth who have grown up in the foster system are placed in senior housing communities. In the case of a program started by nonprofit The Victory Lap, youth are required to work a minimum of 10 hours a week onsite and attend a college or trade school. In exchange, they pay a lower rent, according to the organization’s website.
It’s also a win-win situation for younger generations if you consider that millennials (born between 1981 and 1997) are a less likely generation to own their home than baby boomers and Gen Xers (born between 1965 and 1980), according to a report by the Urban Institute. At the end of 2018, only one in three millennials under the age of 35 were homeowners, according to the U.S. Census Bureau.
This creative living structure has taken hold in countries such as China, Denmark, the Netherlands and France, becoming a global trend that is seeming to breathe new life into the historically siloed senior housing sector.
Kali Persall is a reporter at Institutional Real Estate, Inc. and editor of iREOC Connect.