As baby boomers age, the need for affordable senior housing facilities will continue to rise. Investors and developers are taking notice with new construction projects. Strong market fundamentals and the aging population means more growth for all types of senior housing facilities.
New senior housing construction
The current supply of senior housing is often outdated. Consequently, the senior housing market is seeing the construction boom. Cities like Salt Lake City, Albuquerque, and Ogden, reported double-digit inventory gains in senior housing. In the final quarter of 2017 alone, over 6,000 new senior housing construction units started in 31 primary markets, and estimates say 20,606 new units started during all of 2017.
Even though the National Investment Center reports assisted living and independent living housing inventory has outpaced absorption, occupancy rates remain high.
Strong Market Fundamentals
The new supply is not having a significant impact on vacancy rates. According to NREI, Sacramento and Los Angeles reported occupancy rates above 90%, while San José ranked highest in the nation at 95% in the second quarter of 2017. Nationally, occupancy remained steady at 89% from the third quarter to the fourth quarter of 2017.
High demand naturally is increasing rents. Los Angeles reported senior housing rent increased 4.7% and San José was up 5.4%. NIC pointed out the strongest year-over-year rent growth for senior living occurred in West Coast cities: San José , Los Angeles, Las Vegas, Seattle, and Portland.
Senior housing has generated steady cap rates. An NREI survey found most investors (52%) believe cap rates will rise over the next twelve months, while 28 percent predict no change. Generally, NREI stated senior housing reports higher cap rates to other asset classes like student housing or multifamily.
The Aging Population
Current senior housing market demographics are at the tip of the iceberg. The baby boomer generation is just entering retirement age. Data from the US Census Bureau indicates 75.5 million citizens will be aged 65 or older by 2030, representing 6% of the total population. A City of Los Angeles study projects LA County’s senior population will double in roughly the same time frame from 1.5 million to almost 3 million.
A contributing factor to the increased senior housing demand are changes to life expectancy. Senior citizens are expected to live longer than previous generations and have a higher quality of life over that time frame. This is reshaping needs and expectations of the senior housing market.
The booming population, variety of senior housing property classes, and a forecast of strong return-on-investment led a study by PWC and the Urban Land Institute to name senior housing one of the best investor bets for 2018.