Intelligent Investment

2022 Seniors Housing Development Costs

September 14, 2022 5 Minute Read

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Summary

The average cost of a seniors housing development has increased by 17.8% since 2020 to $317,400 per unit or $333 per sq. ft. The increase is largely attributable to higher labor and materials costs, as well as operating expenses and outlays for entitlements. The average net rentable area of the 142 projects surveyed by CBRE was 59.9% of gross building area, down from 64.1% in 2020.

Hard costs represented the largest portion of total development cost at 70.2%, followed by soft costs at 18.5% and site acquisition costs at 8.2%. Return on cost, when measured as projected stabilized net operating income as a percentage of overall development costs, averaged 8.6%.

Figure 1

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Source: CBRE Valuation & Advisory Services and CBRE Research, Q3 2022.

Site Acquisition Costs

Site acquisition costs for fully permitted projects represented a significant component of the total development cost—an average of $30.80 per sq. ft. of the gross building area or 8.2% of the total. Site costs for most developments ranged from $12,100 to $33,500 per revenue unit.. Primary factors governing site costs include area density, regulatory climate and demographic trends.

Figure 2

Image of data table

Source: CBRE Valuation & Advisory Services and CBRE Research, Q2 2022. *The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % Change reflects variation from 2020 data.

Hard Costs

Hard costs represented the largest component of the development expenditure, ranging from $173 to $262 per sq. ft. of gross building area and 65.6% to 75.8% of total development cost. They include sitework, foundation, building shell construction, roofing, interior finishes, landscaping, signage and labor.

Figure 3

Image of data table

Source: CBRE Valuation & Advisory Services and CBRE Research, Q2 2022. *The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % Change reflects variation from 2020 data.

Soft Costs

Soft costs averaged 18.5% of total development costs and $63.50 of gross building area. Soft costs generally cover inspection fees, construction loan costs, architectural and design costs, project management, operating deficit and any other carry cost during the construction and leasing phases.

Figure 4

Image of data table

Source: CBRE Valuation & Advisory Services and CBRE Research, Q2 2022. *The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % Change reflects variation from 2020 data.

FF&E Costs

Furniture, fixtures & equipment (FF&E) costs averaged 3.0% of total development costs and $9,700 per revenue unit. Although considerable, these expenditures are not always included in development costs because they are not a permanent part of the building.

Figure 5

Image of data table

Source: CBRE Valuation & Advisory Services and CBRE Research, Q2 2022. *The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % Change reflects variation from 2020 data.

Returns on Cost

CBRE measures return on cost as stabilized net operating income as a percentage of total development costs. Cap rates on stabilized assets have compressed slightly over the past year to 6.2%. Despite a meaningful increase in the stabilized value, returns on cost fell slightly to 8.6%.

The stabilized value metrics are based on inflation-adjusted dollars as of the date of stabilization, while the construction cost metrics are based on current dollars. These costs include operating shortfalls during lease-up. Stabilized capitalization rates represent market-supported and data-driven opinions as opposed to data derived from transactions.

Figure 6

Image of data table

Source: CBRE Valuation & Advisory Services and CBRE Research, Q2 2022. *The first quartile is the median of the values below the complete set median; the third quartile is the median of the values which are greater than the complete set median. % Change reflects variation from 2020 data.