Marcus & Millichap

National Seniors Housing Research Report

National Report, Second Half 2017

Access Full Report Subscribe

Aging Population Driving Seniors Housing Market Growth; Healthcare Reform Uncertainty Has Investors Reviewing Portfolios

Demographic factors, economic growth curb concerns of overbuilding in select markets. The aging population remains a main driver in seniors housing construction. Out of the nearly 55,700 seniors housing units underway at the end of the second quarter, approximately 23,600 are located in 10 markets, with major metros such as Chicago, Atlanta, Phoenix and Dallas lead-ing the way. While concerns of overbuild-ing linger, these worries are concentrated at local levels and the majority of markets will emerge unscathed from the current con-struction cycle. Strong population growth and stable or expanding economies will drive demand for the thousands of units coming online in some of these markets. Metros with rising tax burdens or where companies are choosing to move to more business-friendly climates could generate moderate seniors housing demand as seniors move closer to adult children. Overall, the number of units underway is minimal when compared with the population of the baby boomer genera-tion the sector is preparing for.

Sales activity declines; investors cite concerns about uncertain health insur-ance changes. Some investors are paus-ing seniors housing investment activity as concerns over healthcare legislation loom. Changes to the Affordable Care Act are uncertain, but the act stands as law, and providers and insurers must comply. Fur-thermore, adjustments will likely not take ef-fect overnight, giving those impacted time to react and adjust before changes are imple-mented. Rising demand for seniors housing units as the general population ages will not change, however, and operators will man-age any healthcare legislation changes in order to maintain favorable returns.

Investment Highlights

  • REITs are net sellers this year while they rebalance portfolios, also con-tributing to a decline in transaction velocity. The restructuring could re-sult in increased future sales activity as they purchase IL and AL proper-ties with funds raised after selling off skilled nursing facilities.
  • Private equity funds are picking up the slack as REITs sell off properties, providing operators with the oppor-tunity to grow.
  • Stabilized seniors housing properties in primary markets are in highest de-mand, with AL and IL properties cap-turing cap rates between 6 and 7 per-cent. Memory care assets can trade for initial yields in the 7 percent area.

2017 Seniors Housing Outlooks

Independent Living (IL): Strong absorption trends keep stabilized occupancy within range of the last three years, reach-ing 91.3 percent at year end. The average rent advances at a healthy pace, climbing 2.6 percent to $3,101 per month.

Assisted Living (AL): Stabilized occupancy falls 40 basis points this year as supply additions outweigh demand. The rate has been on a steady decline for the past four years as deliveries are elevated. Despite the dip, demand is strong and average rent rises 3.6 percent to $4,624.

Skilled Nursing (SN): Stabilized occupancy will decline 60 basis points this year, continuing its downward slide, to 86 percent. Rising healthcare costs push operators to increase rates, and the average daily rate will rise to $311 per bed per day, a 2.6 percent annual increase.

Continuing Care Retirement Communities (CCRCs): Healthy absorption trends increase stabilized occupancy 60 basis points to 91.5 percent in 2017. Strengthening demand prompts a 2.9 percent year-over-year advance in the average rent to $3,194 per month.

Access Full Report Subscribe