Seniors Housing Sector Resilient Despite Market Challenges, Expects Rental Rate Increases in 2023: CBRE Survey

The seniors housing sector is poised to see rental rate increases in 2023, despite challenges such as rising interest rates and a constrained lending environment, according to a new CBRE survey.

The survey found that more than 75% of investors anticipate rental rate increases of 3% or more over the next 12 months across most senior housing classes, due to inflation-driven operating cost increases and rising development cost. Assisted Living is expected to experience the greatest increase in rental rates, with 28% of investors projecting rent growth above 7% over for the next 12 months, up from 15% of investors in 2022. No rental decreases are expected for any asset class in the sector.

Survey respondents identify Active Adult (37%) as the biggest investment opportunity in the seniors housing sector this year, driven by younger baby boomers entering their retirement years. Assisted Living (29%) and Independent Living (13%) were the next most popular investment opportunities. The most significant challenges for investors are staffing shortages, higher borrowing costs and a constrained lending environment.

“Although there are challenges, many investors still consider seniors housing to be an attractive asset class with rental rates trending upward due to the need-based demand and constraints on future supply,” said Daniel Lincoln, leader of Seniors Housing and Healthcare for CBRE’s Valuation & Advisory Services. “Sustained higher interest rates have made it difficult to finance deals, and other challenges such as staffing shortages are expected to persist throughout the remainder of the year.”

The average seniors housing capitalization rate increased by 26 basis points year-over-year in 2022. Nearly 50% of respondents to this year’s survey expect cap rates to increase in 2023, compared with only 27% of respondents last year. Capitalization rates, which measure a property’s value by dividing its annual income by its sale price, generally indicate a lower cap rate for a higher value.