Housing sector

Retirement home sector rebounds as investor interest grows

Supported by strong long-term demand and heightened investor interest, the senior housing sector is now fully in recovery mode, according to the fifth annual report from JLL’s Valuation Advisory Group. Senior Housing Investor Survey and Insights. The survey also found that investors are bullish on the housing and aged care sector due to the predicted “silver tsunami” of baby boomer retirees and the resulting supply shortage.

Among investors surveyed, 80% of respondents said they believed the worst of the pandemic was over and expected market fundamentals to continue to improve, a significant increase from responses from the last year’s survey, which indicated that only 48% of investors expressed this sentiment. Additionally, 76% of respondents expect to increase their exposure to senior housing over the next year, demonstrating good market prospects for 2022 and beyond.

“We have seen the market stabilize as fundamentals have continued to improve over the past several quarters, said JLL Managing Director Brian Chandler, MAI, CRE, Co-Head of Housing Practice for the elderly, Valuation Advisory. “Occupancy rates in several markets are beginning to return to pre-pandemic levels. Additionally, the pace of rent growth has accelerated throughout 2021 and is expected to continue throughout the year. »

Improved 2021 performance sets the stage for a successful 2022

Transaction volumes rebounded in the fourth quarter of 2021, growing 61% from the first quarter and reaching levels last seen at the end of 2019. Even the most operationally challenging segment, the nursing investment segment, grew by 24%. year-on-year increase.

At the end of 2021, the average senior housing price per unit was just under $160,000, up 9% from its previous low in the first quarter of 2021, but still below the peak pre-pandemic of about $180,000 per unit. Similarly, nursing segment unit prices are recovering from the pandemic decline, albeit at a more choppy pace.

The year ahead for investors

For 2022, investor activity for senior housing is expected to continue at a higher pace than 2021 due to the abundance of capital/liquidity in the market as REITs continue to sell their product in the secondary market and more base funds entering the space.

As investors seek yield in an ultra-competitive landscape, some are looking to alternative asset classes like senior housing for growth. Unlike the last survey, when participants said they focused on more traditional, needs-based segments, the 55+ working adult segment emerged as the most sought-after investment opportunity compared to the assisted living.

“We see demand improving every quarter, so the long-term opportunity is quite attractive for institutional capital looking to diversify their portfolios or hedge against riskier investment classes,” added JLL Managing Director Bryan Lockard, MRICS, Co-Head of Seniors Housing. Practice, assessment advice. “Additionally, capital for commercial real estate investment continues to accelerate to historic highs, reaching $243.7 billion in February 2022.”

For investors concerned about rising interest rates, historically the relationship between benchmark yields or Fed rate hike cycles and commercial real estate returns has been relatively weak. Strong fundamentals and the amount of uninvested capital targeting commercial real estate, coupled with strong macroeconomic fundamentals in the United States, are driving prices in today’s market. These factors should act as a counterweight to any upward pressure on cap rates from inflation and/or rising benchmark yields.

The new investment cycle brings opportunities and challenges

The 80+ population is primarily driving the current demand for senior housing products; However, in early 2022, the industry entered a new 10-year investment cycle that will include a large population of baby boomers moving into or planning to move into a retirement community. This influx of new residents entering senior residences, or the “silver tsunami,” is expected to create a supply shortage, amplifying demand. JLL predicts that the sector will be undersupplied by 600,000 units by 2045, suggesting supply growth must increase by more than 25,000 per year to meet peak demand levels.

Construction activity rose in primary markets after declining due to headwinds related to the COVID-19 pandemic, while locations in secondary markets continued to lag.

“Seniors are looking for more affordable, yet still vibrant, communities in which to retire, and that’s prompted developers to follow suit,” Chandler said. “Current construction activity is heavily concentrated in Sun Belt markets, reflecting an acceleration in migration patterns among all age groups, but especially those in the 55-plus cohort.”

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