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  • Krone Weidler

Senior Living Sector: Navigating the 'Great Recalibration' Amid Market Upheavals

Introduction The senior living industry is undergoing a significant transformation, a period aptly termed the 'Great Recalibration.' Despite the improving fundamentals in senior housing, the sector faces a complex array of challenges and uncertainties, primarily influenced by the current interest rate environment.

A Mixed Bag of Trends Zach Bowyer, Senior Managing Director at Cushman and Wakefield, highlights the dichotomy facing the senior living sector. On one hand, the industry's fundamentals are stronger than ever, with low construction rates and improving operations. On the other, it grapples with the repercussions of high interest rates affecting commercial real estate.

Key Insights from the Latest Investor Survey and Trends Report The recent report from Cushman and Wakefield, based on inputs from over 90 senior housing investors, underscores several critical trends:

  • Stabilized Occupancy and Rent Growth: Occupancy has been on an upward trajectory for the past ten quarters. Rent growth maintained a steady pace of 5% in the third quarter of 2023, with assisted living witnessing the highest growth at 6.4%.

  • Net Absorption Rates: The sector has seen unprecedented net absorption rates, outpacing inventory for nine consecutive quarters, indicating robust demand.

  • Geographic Variances: Northeast markets are poised for strong performance, while the Southwest and Southeast may face challenges due to new supply.

  • Pricing and Transaction Volume: There's been a notable decrease in the average price per unit and transaction volume, reflecting a cooling market.

  • Construction Starts and Supply Demand: Construction starts have slowed, and there's a pressing need for an increase in supply to meet the rising demand.

The Challenge of Affordability and Demographic Shifts Affordability remains a significant concern, especially with the middle-income senior population set to double by 2029. This demographic shift brings with it increased healthcare and functional needs, with a substantial portion struggling to afford private pay assisted living rates.

Loan Maturities and Market Implications The sector is bracing for $16 billion in loan maturities in the next two years, potentially triggering heightened transaction activity. This situation presents opportunities for investors less reliant on leverage.

Looking Ahead Bowyer remains optimistic about the operational improvement in senior housing. With occupancy levels expected to rise and a trend towards reducing operating expenses, the sector shows resilience. However, the cost of capital and interest rates will continue to exert pressure on valuations in the near term.

Conclusion: A Sector in Transition The senior living industry is at a crucial juncture, balancing robust market fundamentals with external economic pressures. As it navigates this 'Great Recalibration,' stakeholders must adapt to these evolving dynamics, preparing for both the opportunities and challenges that lie ahead.

The Takeaway The senior living sector's current scenario is a reflection of its resilience and adaptability. With a focus on operational efficiencies and strategic market responses, the industry is poised to meet the demands of a rapidly changing demographic landscape, despite the headwinds of the broader economic climate.

Source: Andrew Christman, Senior Housing News

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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