U.S. Seniors Housing & Care Investor Survey 2023

• Skilled Nursing (SN) cap rates decreased by 34 basis points (bps) year-over-year. This was the only seniors housing care category with a lower average cap rate.
• The average cap rate for Active Adult (AA) communities, which once again led the “top investor opportunity” category, increased by 21 bps year-over-year (+57 bps in the Class A segment).
• Average capitalization rates for Independent Living (IL), Assisted Living (AL) and Memory Care (MC) facilities increased by 28 bps year-over-year, with greater increases for Class A assets than Class B and for core markets than non-core.
• Difficulty in maintaining adequate staffing levels ranked as the greatest headwind facing the seniors housing industry this year.
• For AA, IL, AL and MC facilities, the greatest percentage of respondents reported underwriting rental rate increases of 3% to 7% over the past 12 months.

Year-over-year cap rate changes (bps)

The average seniors housing capitalization rate increased by 26 bps year-over-year, while the average Skilled Nursing capitalization rate decreased by 34 bps.

A clear bifurcation emerged between Class A and Class C assets, with cap rates increasing 57 bps for Core Class A Active Adult to 5.2% from 4.6% and decreasing 24 bps for Core Class C Active Adult to 6.6% from 6.8%.

Likewise, Core Class C Skilled Nursing cap rates decreased 103 bps year-over-year to 12.3% from 13.3%, a much bigger decrease than for Core Class A.

Survey respondents view assets with the lowest cap rates as those most negatively impacted by rising interest rates.

Figure 2: Seniors Housing & Care Capitalization Rates

Source: CBRE Seniors Housing Investor Survey, 2023; change from 2022, Survey.

Overall cap rate spreads between asset classes fell by 32 bps year-over-year, largely due to a 47-bp decrease in the spread between Class A and C. The spread between Class A and C Skilled Nursing assets fell by 101 bps to just 150 this year.

The reduction in spreads resulted from the higher cost of debt on the lowest yielding asset classes, together with a significant reduction in cap rates for Class C assets across all acuity levels except memory care.

The average spread between core and non-core assets was essentially unchanged at 49 bps.

Figure 3: Seniors Housing & Care Capitalization Rate Spreads by Asset Class & Location

Source: CBRE Seniors Housing Investor Survey, 2023; change from 2022, Survey.

Figure 4a: Historical Cap Rate Trends – Independent Living, Assisted Living & Memory Care

Note: Time periods represent when surveys were done.
Source: CBRE Seniors Housing Investor Survey, 2023.

Figure 4b: Historical Cap Rate Trends – Skilled Nursing

Note: Time periods represent when surveys were done.
Source: CBRE Seniors Housing Investor Survey, 2023.

Figure 4c: Historical Cap Rate Trends – CCRC/LPC

Note: Time periods represent when surveys were done.
Source: CBRE Seniors Housing Investor Survey, 2023.

What seniors housing care level do you see as the biggest opportunity for investment?
Active Adult again led for investor expectations of risk-adjusted returns, widening its lead as the biggest investment opportunity in 2023. Independent Living decreased significantly with only 13% of respondents selecting the class as the biggest opportunity for investment.

Figure 5: Biggest Opportunity for Investment (%)

Source: CBRE Seniors Housing Investor Survey, 2022 (Inner Ring) and 2023 (Outer Ring).

What is your 12-month outlook for seniors housing cap rates?
In a significant change from CBRE’s prior survey, nearly 50% of respondents said they expect cap rates will increase in 2023, compared with only 27% of respondents last year. A majority of respondents cited higher borrowing costs and a constrained lending environment as the most significant threats to the seniors housing industry over the next 12 months.

Figure 6: 12-Month Cap Rate Outlook (%)

Source: CBRE Seniors Housing Investor Survey, 2022 (Inner Ring) and 2023 (Outer Ring).

Respondents were asked how they were underwriting rental rate trends over the next 12 months.
More than 75% of respondents expect rental rate increases of 3.0% or more over the next 12 months across all classes except Skilled Nursing. No respondents expected rent decreases for any asset class. The proportion of interviewees who reported underwriting rent growth above 7% nearly doubled for Assisted Living, increasing to 28.1% in 2023 from 15.0% in 2022.

Figure 7: Rent Growth Expectations

Source: CBRE Seniors Housing Investor Survey, 2023.