Senior housing could be considered an “under-the-radar” commercial real estate sector, especially compared to the more active industrial, retail and multifamily sectors. However, NIC Map Vision’s Senior Housing Outlook report showed that development is behind, which could mean a $275 billion gap by 2030. The report explained that surging fundamentals (due to demographic and economic trends) and suppressed investment activity due to what it dubbed “dislocated debt markets” are among the reasons for that pending gap.

“Senior housing isn’t necessarily lagging. It’s facing an unprecedented surge in demand at a time when the lending environment is constraining new development,” Arick Morton, NIC MAP Vision CEO, told Connect CRE. Furthermore, despite post-recovery occupancy and robust absorption within the sector, “the situation is exacerbated by the dislocated debt markets and high interest rates which have suppressed new construction starts to near-historical lows.”

The numbers show occupancy and aggregate employment were within 1%-2% of pre-COVID levels. Furthermore, “rents are rising while operating expenses and inflation are moderating, leading to expanding profit margins,” the report said.

Additionally, the report pointed out that:

• Q1 2024 absorption increased by 40% year-over-year in Q1 2024

• The growth in the 80-year-old-plus population is exceeding inventory growth

• The 80-plus population is anticipated to “grow significantly” within the next 25 years

Defining Senior Housing

Morton explained that “senior housing” is an umbrella term for properties designed for individuals aged 75 and older. The categories include:

• Active Adult (AA): Communities dedicated to lifestyle-focused, minus healthcare services.

• Independent Living (IL): This is for mostly independent seniors who need assistance with daily activities and access to social and recreational activities.

• Assisted Living (AL) is for seniors who require assistance with various activities, such as bathing, dressing, and medication management.

• Memory Care (MC): Specialized assisted living for seniors with dementia.

• Continuing Care Retirement Communities (CCRC): Communities that provide a continuum of care from independent living to nursing care, meaning residents can age in place.

There is a need for additional space and housing across all categories due to unprecedented demand growth driven by an aging population.

But Is There Liquidity?

Morton said equity capital is available in the sector. He also acknowledged that the banking pullback in CRE lending and high interest rates are problematic for new development financing. As such, the current lending environment is insufficient, while the available capital “will need to grow substantially to meet the growing demand,” Morton observed.

Despite this, Morton said that intelligent investors who are able to navigate debt and capital challenges will tap into the sector’s many opportunities.

The Takeaways

Based on the report’s numbers, Morton suggested that investors and developers consider senior housing a viable real estate product. Taking advantage of the sector’s opportunities requires the following steps :

• Position themselves to take advantage of the building demand wave.

• Focus on high-demand markets that show strong occupancy trends and expanding profit margins.

• Invest in outdated properties that can benefit from capital upgrades.

• Develop new properties with modern amenities ideal for today’s seniors.

• Focus on a long-term strategy with sustainable development and continuous facilities improvement.

“These steps will enable investors and developers to capitalize on the strong fundamentals and favorable demographic trends driving the senior housing market,” Morton noted.