BBG Senior Housing Investor Survey Reveals Key 2023 Market Trends
BBG, the nation's largest independent commercial real estate services firm, today announced the inaugural edition of its U.S. seniors housing investor survey, offering keen insights from market professionals on major trends expected to impact this alternative asset class in 2023.
Completed in January, the survey compiled responses from the most significant U.S. investors, developers, lenders and brokers. It focuses on trends expected to impact the seniors housing market in several areas including capitalization and rental rates, stabilized occupancy, operating expenses and other key market performance metrics.
The survey's key takeaways include a combination of expected capitalization rate expansion and rising operating expenses -- if not offset by record-setting rental rate growth – this could lead to a decrease in seniors housing pricing this year.
R.J. DeBee III, Managing Director and National Seniors Housing Practice Leader, commented on the survey: "We are excited to release our inaugural seniors housing investor survey. This survey provides valuable insights on the investment opportunities and challenges facing this sector in the current post-pandemic climate. Despite the headwinds swirling around seniors housing this year, the longer-term trend of providing adequate housing to meet the demands of an aging population makes this asset class a highly attractive investment option."
Seniors housing property types analyzed in the survey include active adult, independent living, assisted living, skilled nursing care, and Continuing Care Retirement Community/Life Plan Community (CCRC/LPC). Survey results were analyzed by asset class and market quality with primary markets identified as the top 50 markets within the United States, while secondary markets encompass the remaining markets.
Highlights of the survey include:
Cap Rates Projected To Remain Flat Or Expand: Capitalization rates for all seniors housing care levels are expected to remain flat or expand in 2023. Survey respondents say active adult and independent living communities are expected to have the lowest cap rates, with active adult cap rates expected to be the lowest of all care levels surveyed. Meanwhile, skilled nursing and CCRC/LPCs are predicted to post the highest cap rates. Independent living had the greatest number of responses predicting compression of cap rates while nearly two-thirds of the responses expect assisted living and memory care properties to expand by at least 25 basis points (bps) this year.
Higher Rental Rate Growth Projected: Rental rate growth for all care levels is expected to continue to increase significantly this year, consistent with the trends in the post-pandemic environment. Nearly 90% of the survey respondents anticipate higher rental rates, with an equal split falling between an increase of 1-5% for all property types. Assisted living and memory care had the highest projected growth, ranging from 5-10%, while 15% of respondents expect rents to grow 10% or higher this year.
Active Adult Leads Stabilized Occupancy: Respondents predict active adult communities will have the highest stabilized occupancy in 2023 while skilled nursing is expected to have the lowest rate. The survey also showed that CCRC/LPC is expected to have the largest spread in stabilized occupancy compared to other care levels.
Operating Expenses On The Rise, Margins Under Pressure: A majority of the respondents (a cumulative 77.5%) project seniors housing operating expenses to increase by 3-5% in 2023 compared to the same period a year earlier. Also, 77% of respondents expect margins to remain flat or decline this year while the remainder anticipates a net expansion of margins. Anticipated pressure on margins is attributed to higher costs related to staffing, the current inflationary environment, and increasing property insurance expenses in primary seniors housing states.