The senior living industry, traditionally a bastion of stability, faced turbulent times in the latter half of 2023. This period was marked by rising capitalization rates across all senior living product types, posing significant challenges. However, 2024 brings with it a renewed sense of optimism and potential improvement in the supply-demand dynamics.
A Comprehensive Industry Insight
Recent industry reports provide a detailed analysis of the current state and future prospects of the senior living sector. These insights, derived from surveys conducted with a diverse group of participants including REITs, private investors, institutional investors, and developers, offer a glimpse into the evolving landscape of senior living.
Rising Cap Rates: A Sector-Wide Phenomenon
The latter half of 2023 saw independent living, assisted living, and memory care sectors experiencing an average increase in cap rates of 73 basis points. This trend was more pronounced in Class C assets, contrasting with previous patterns where Class A assets led the increases.
Overcoming Challenges
The past year has been particularly challenging for senior housing owner-operators and investors. Market uncertainty, especially regarding forecasted occupancy and operating margins, has been a focal point of concern. However, the interplay of increasing demand and controlled inventory growth suggests a potential rebalancing of supply and demand in 2024, promising higher rent growth and profitability.
Steady and Surprising Trends
In terms of capitalization rate spreads, the changes have been largely consistent, with the exception of Class C assets. The average rate changes were 71 basis points for Class A, 74 for Class B, and 78 for Class C assets, with skilled nursing witnessing the most significant increases.
Rent Growth Projections for 2024
Rent growth is a primary topic for the upcoming year. About 77% of industry participants anticipate a rent increase of more than 3% for residents in 2024. The active adult sector is particularly notable, with a significant proportion of respondents expecting a 3 to 7% increase. Assisted living could see the highest rent increases, with over a quarter of respondents predicting an increase of more than 7%.
Conclusion: A Promising Yet Cautious Outlook
As 2024 unfolds, the senior living industry is at a pivotal point. Despite the past challenges, there's an air of cautious optimism with expectations of growth and stability. The industry, therefore, remains poised for a phase of positive transformation, albeit with a need for continued vigilance and adaptability.
Source:Â CBRE Industry Survey
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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