Investors See Significant Growth in Short-term with Full Recovery Expected in 2022
According to CBRE's latest U.S. Seniors Housing & Care Investor Survey, seniors housing has shown strong resilience to the adverse impacts of the COVID-19 pandemic, with the vast majority of operators reporting pent-up investment demand and positive leasing trends in the first half of 2021.
Investors responding to the survey indicate significant investment growth is likely in the short-term, with a full recovery expected in 2022. In the mid-term, investors are encouraged by an aging population--baby boomers are nearing traditional ages for seniors housing with approximately 9,000 turning 70-years-old every day--and a greater understanding of the threats posed by the pandemic.
Compression in overall capitalization rates for seniors housing in 2021 to date show a reduced perception of risk for investors posed by the COVID-19 pandemic. Seniors housing investment volume increased by 31% in the first quarter of 2021, compared to the previous quarter. Q1 2021 volume represented a 209% increase from the levels recorded at the pandemic-trough in Q2 2020.
The majority of respondents (93%) expect seniors housing rents to hold firm or rise modestly over the next 12 months. Most (90%) expect occupancy levels to improve over the next 12 months, compared to 70% in H2 2020. A majority of respondents (91%) believe that seniors housing communities will reach pre-pandemic occupancy levels within 24 months, with 75% indicating a re-absorption period of 18 months or less.
"The seniors housing industry story is one of resilience and determination by the community-level staff, and those who support them, in providing care for the most vulnerable among us. Investors have seen this, and have come to the table, moving on deals with the largest players back in the market in a meaningful way," said James Graber, national practice leader of Seniors Housing & Healthcare for CBRE's Valuation & Advisory Services.
Throughout the COVID-19 pandemic, seniors housing operators reported increased costs mostly comprised of increased payroll, sanitation, and Personal Protective Equipment (PPE). Pandemic-related operating expenses have now begun to abate, with a majority (69%) believing that current underwriting practices will only be in place for the next 12 months, compared to 47% in H2 2020.
Active Adult (31%) has once again emerged as the biggest opportunity for investment in the seniors housing sector over the next 12 months, followed by Assisted Living (28%), which led the previous two surveys, and Independent Living (23%). Investor interest in Memory Care and Skilled Nursing showed significant declines, indicative of market sentiment associated with the risk of higher acuity operations.