Investor Demand for Senior Housing Continues to Grow in U.S.
According to CBRE's latest U.S. Seniors Housing & Care Investor Survey
, investor appetite for seniors housing & care real estate continues to grow, with the majority of investors who specialize in the sector planning to increase the size of their portfolios in 2017.
The 2017 survey reveals the intentions of the most influential seniors housing investors, developers, lenders and brokers throughout the U.S. Despite investors' expectations for rising interest rates, nearly 60% of respondents expect to increase the size of their portfolios in 2017 compared with 47% a year ago.
Compared with prior survey results, the change in expectations for capitalization rates was negligible, indicating the possibility for more pricing stability. The number of investors anticipating a rise in cap rates increased to 44% from 33% a year ago, with only 4% expecting to see a decrease. More than half (52%) of investors expect capitalization rates to remain stable over the next year.
A noticeable shift was apparent in the compression of investment Class C assets that CBRE attributes to increased interest from investors for value-add opportunities in a yield-constrained market. The largest increase was reported for investment Class A nursing care at +24 bps from a year ago, which is likely attributable to the uncertainty regarding healthcare legislation or investors' concern over the surging pricing for nursing care properties in recent years.
Independent living eclipsed assisted living as the biggest opportunity for investment, increasing to 40% of respondents from 31% a year ago. Similarly, age-restricted properties also gained interest as participants begin to direct their attention towards the more life-style focused spectrum of seniors housing. Memory care properties continued to lose ground, with investors now seeing the least opportunity for this property type, likely due to the overbuilding of this segment in recent years.
Increased construction activity remained the top concern for investors (38%) that would negatively impact the seniors housing and care market over the next 12 months, followed by rising interest rates (22%) and property-level operation (21%). Rising interest rates showed the biggest increase from 11% a year ago.
"Investor interest in the seniors housing sector is clearly rising. Favorable investment yields, the need-driven component of demand, and the aging population storyline will continue to drive investment into the sector in 2017 and entrench its attractiveness to investors. We expect valuations to remain stable in this year with a strong long-term outlook. The industry's fundamentals suggest the necessity for more capacity over the long-term, with short-term oversupply in select markets becoming more likely as a result of the recent record-setting construction levels," said Jeanette Rice, head of multifamily research, Americas, CBRE.
"As the sector goes through a period of "institutionalization", the corresponding operational results will continue to evolve with greater efficiencies and innovative design trends, which will be welcomed by investors and developers in the face of increasing supply. The seniors housing investment market is expected to move into a more rational transaction period as capitalization rates slowly increase. A shift in investors' focus from development and acquisitions to portfolio and operating platform optimization is also likely. Sound property level operations, capital inflows from foreign investors, and moderated development trends will be critical to maintaining short-term valuations," said Zach Bowyer, managing director, Valuation & Advisory Services, CBRE.