Housing sector

Despite Covid, US senior housing sector shows resilience in 2021

Investors see significant near-term growth with full recovery expected in 2022

According to CBRE’s latest U.S. survey of senior housing and care investors, senior housing has shown strong resilience to the adverse effects of the COVID-19 pandemic, with the vast majority operators reporting pent-up investment demand and positive rental trends in the first half of 2021.

Investors responding to the survey indicate that significant investment growth is likely in the near term, with a full recovery expected in 2022. In the medium term, investors are encouraged by an aging population – baby boomers are approaching the traditional age of elderly housing with around 9,000 people reaching the age of 70 every day – and a better understanding of the threats posed by the pandemic.

The compression in overall senior housing cap rates in 2021 to date shows a reduced perception of investor risk posed by the COVID-19 pandemic. The volume of investment in senior housing increased by 31% in the first quarter of 2021, compared to the previous quarter. Volume in the first quarter of 2021 represented a 209% increase over levels seen during the trough of the pandemic in the second quarter of 2020.

The majority of respondents (93%) expect rents for seniors’ residences to remain stable or increase slightly over the next 12 months. Most (90%) expect occupancy levels to improve over the next 12 months, up from 70% in H2 2020. A majority of respondents (91%) believe retirement homes will reach pre-pandemic occupancy levels within 24 months, with 75% indicating a reabsorption period of 18 months or less.

“The story of the senior housing industry is one of resilience and determination of community level staff and those who support them, providing care for the most vulnerable among us. Investors have seen and come to the table, making deals with the biggest players in the market in meaningful ways, said James Graber, National Seniors Housing & Healthcare Practice Leader for CBRE Assessment and Advisory Services.

Throughout the COVID-19 pandemic, senior living operators have reported increased costs primarily made up of increased payroll, sanitation and personal protective equipment (PPE) . Pandemic-related operating expenses have now started to decline, 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%) again emerged as the biggest retirement housing investment opportunity over the next 12 months, followed by Assisted Living (28%), which topped both previous surveys , and Independent Living (23%) . Investor interest in memory care and skilled nursing showed significant declines, indicating market sentiment associated with the risk of more urgent operations.

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