【仲量联行】2024年老年人住房及护理中心投资者调查及趋势展望报告_25页_2mb

Summary of Seniors Housing and Care Investor Survey and Trends Outlook

Core Content

The seniors housing and care sectors are showing signs of recovery from the impacts of the COVID-19 pandemic, with improving market fundamentals and continued interest from investors seeking higher yields in alternative asset classes.

Main Points

• Market Recovery: Occupancy rates have rebounded significantly, reaching 86.3% in Q4 2023 for primary markets and 88.1% for secondary markets. This growth is supported by a slowdown in construction starts and a stable demand from the aging baby boomer population.

• Transaction Volumes: Transaction volumes declined in 2023 due to higher financing costs and market uncertainty, with activity in the first three quarters down 33% compared to the prior year. Portfolio transactions made up 35% of Q4 2023 activity, indicating a shift in investment strategy.

• Capitalization Rates (Cap Rates): Cap rates have increased due to higher lending costs. They averaged 5.0% in Q2 2021 and rose to around 7.0–8.0% in Q4 2023, depending on the investment class and location. The spread between the 10-year Treasury and cap rates has narrowed, suggesting potential for yield compression.

• Price Per Unit Trends: Valuations per unit have diverged across seniors housing subtypes, with assisted living and memory care leading in growth. Rent growth, though softening in 2023, still outperforms the multi-housing sector and remains above historical averages.

• Investor Sentiment: Interest in seniors housing remains strong, with investors looking for higher yields. Private investors have become a larger share of the buyer pool, as institutional liquidity has decreased.

• Construction Activity: Construction starts have slowed significantly, especially in the context of rising interest rates and costs. However, demographic trends indicate long-term demand for seniors housing will continue to grow.

• Demographic Trends: The U.S. population aged 75+ is expected to grow by 44% over the next decade, and the 80+ population by nearly 50%. This growth will drive demand for housing and care facilities.

• Investor Survey Insights:

  • Cap Rate Spreads: The average spread between direct cap rates and unlevered IRRs on a 7-year hold is 262 bps. The spread between core and non-core cap rates varies by investment class.
  • Terminal Cap Rates: The typical spread between going-in cap rates and terminal cap rates over a 10-year hold is 50 bps.
  • Inflation Assumptions: Most investors are underwriting 3% inflation, with a third using 4%.
  • Marketing Time: The average marketing time for seniors housing assets in 2023 was nine months, with 47% of respondents citing this as the most common timeframe.
  • Top Concerns: Availability of financing and interest rate volatility are the top concerns for market participants, with 44% and 35% of respondents citing these issues, respectively. Workforce availability is also a concern, though it has slightly decreased compared to the previous year.

Key Information

• Occupancy Growth: Occupancy rates have increased by six percentage points in primary markets and eight percentage points in secondary markets since the pandemic's impact in 2021.

• Cap Rate Trends:

  • Core cap rates for seniors housing have increased by around 200 bps since Q2 2021.
  • Non-core cap rates have also increased, with some subtypes showing a smaller increase.

• Investment Class Performance:

  • Class A cap rates range from 4.0% to 7.0% with an average of 5.8% in Q4 2023, up from 5.2% in Q4 2022.
  • Class B cap rates range from 5.0% to 8.0% with an average of 6.3% in Q4 2023, up from 5.7% in Q4 2022.
  • Class C cap rates range from 5.5% to 8.5% with an average of 6.9% in Q4 2023, up from 6.4% in Q4 2022.

• Unlevered IRRs:

  • The average unlevered IRRs for seniors housing subtypes range from 8.6% to 13.9% in Q4 2023.
  • Assisted living and nursing care have the highest unlevered IRRs, reflecting their strong performance and demand.

• Investment Focus:

  • Assisted living remains the most sought-after investment subtype.
  • Investors are increasing their exposure to the seniors housing sector in 2024, with 29% planning to maintain current levels and only 8% considering reduction.

• Market Composition:

  • Debt providers represent the largest share of survey respondents at 34%.
  • Investment sales professionals are second at 23%, followed by private equity firms and institutional investors at 13% each.

Outlook

• Cap Rate Expectations: With the Federal Reserve expected to peak interest rates, cap rates are anticipated to stabilize or compress in 2024.
• Future Growth: Continued demographic tailwinds, particularly from the aging baby boomer population, are expected to support long-term demand for seniors housing and care facilities.
• Investment Opportunities: High-quality assets in core markets and underperforming assets in non-core locations offer investment opportunities, with the latter potentially available at below replacement cost.