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  • Krone Weidler

Insights into 2023's Senior Housing Market: A Comprehensive Analysis by Cadre Healthcare Realty Advi


Source: CBRE U.S. Seniors Housing & Care Investor Survey 2023


Overview

The senior housing sector has always been an ever-evolving landscape, with changing demographics, financial metrics, and market dynamics. This year, the sector witnessed some distinct patterns that deserve our attention. Let's dive into the key findings and their implications for investors, operators, and stakeholders in the senior housing industry.


Notable Market Dynamics


  1. Cap Rate Fluctuations: Skilled Nursing (SN) was the standout category with cap rates reducing by 34 basis points (bps) year-over-year. In contrast, Active Adult (AA) communities saw their average cap rate hike by 21 bps, with a more pronounced increase of 57 bps in the Class A segment.

  2. Variations in Capitalization Rates: Independent Living (IL), Assisted Living (AL), and Memory Care (MC) facilities saw an uptick in capitalization rates by 28 bps over the last year. It's crucial to note that Class A assets and core markets witnessed a larger increment compared to their counterparts.

  3. Operational Challenges: One of the primary hurdles facing senior housing operators this year is maintaining adequate staffing levels. This concern underscores the broader challenges related to human resources, training, and retention in the sector.

  4. Rental Rate Adjustments: For AA, IL, AL, and MC facilities, a substantial portion of respondents indicated underwriting rental rate increases ranging from 3% to 7% over the past year.

In-depth Investor Survey Insights


  • Bifurcation Trends: A marked divergence between Class A and Class C assets has emerged. There's a considerable increase in cap rates for Core Class A Active Adult, while Core Class C Skilled Nursing saw significant decreases.

  • Impact of Interest Rates: Rising interest rates seem to have adversely affected assets with lower cap rates. Year-over-year, cap rate spreads between asset classes narrowed significantly, largely influenced by changes in the Class A and C segments.

  • Opportunities in the Market: Active Adult continues to be the frontrunner in investment opportunities this year. However, the allure of Independent Living diminished, with only a minority viewing it as the primary investment opportunity.

  • Cap Rate Outlook: A paradigm shift is evident in this year's survey. Almost half the respondents anticipate an increase in cap rates for 2023, a stark rise compared to last year's sentiment. The looming shadow of heightened borrowing costs and a tighter lending environment has been identified as potential threats in the coming months.

  • Growth in Rent Expectations: Looking at future projections, a vast majority expects rental rate surges of 3.0% or more, especially across all classes other than Skilled Nursing. The expectation for growth in Assisted Living rents above 7% has seen a remarkable escalation, doubling from last year.

Conclusion


2023 promises a blend of opportunities and challenges for the senior housing sector. With cap rate fluctuations, evolving investor sentiments, and anticipated rent growth, stakeholders need to remain nimble and adaptive. At Cadre Healthcare Realty Advisors, we remain committed to guiding our clients through these dynamic market conditions, ensuring they're well-positioned to navigate and capitalize on emerging trends.


Krone Weidler, Founder & Principal

Cadre Healthcare Realty Advisors

1095 SE 177th Place, Suite 404-M14

Summerfield, FL 34491

C: (813) 842-2365

O: (866) 355-3594

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