The seniors housing sector is continuing to deal with the lingering effects from the COVID-19 pandemic, including lower occupancies and higher expenses, which are squeezing net operating incomes and weighing on transaction activity. Yet the 2021 WMRE / NIC Seniors Housing Survey shows growing confidence in the sector’s outlook, including improving fundamentals and a rise in investment activity over the next 12 months.
Capital that moved to the sidelines last year is preparing to get back on the playing field. In all, more than one-third of survey respondents said they plan to invest in seniors housing in the near term—double the 18 percent who planned near-term investments in the 2020 survey, which was conducted in the midst of the pandemic. Investors are even more bullish on their long-term investment plans. About half (51 percent) expect to invest more in seniors housing assets over the long-term, which is up from 34 percent a year ago.
“Part of that rebound is due to the underlying demographic characteristics, but the value proposition is still there,” says NIC Chief Economist Beth Burnham Mace. From an investor’s point of view, seniors housing diversifies portfolios, often performs counter-cyclical to the economy and has a track record of delivering favorable long-term returns. According to the NCREIF Property Index (NPI), seniors housing generated an 11.5 percent annualized total investment return for the 10-year period ending in first quarter of 2021. That compares favorably to the overall return of 8.8 percent for the NPI. “The appeal of seniors housing is still very much driven by the demographics story, and that story has brought in a lot of capital,” says Mace. The leading edge of baby boomers born between 1946 and 1964 are 75 today, whereas the average age that someone enters a seniors housing care facility is 82. So, the wave of demand is still several years away, but it is getting closer every day, she adds.
Despite challenges that have hindered the sector over the past year, respondents continue to view seniors housing favorably compared to other property types. On a scale of 1 to 10, seniors housing generated a mean score of 7.0, which was second only to apartments at 7.3 and even slightly ahead of industrial at 6.8. Although the current rating is an improvement from the 6.3 rating that seniors housing had in the 2020 survey, it still represents the second lowest level in the eight-year history of the survey.
“COVID has been extremely challenging for the senior housing industry given residents are highly vulnerable. That being said, the industry seems to have hit bottom early in ’21 and occupancy has been building since then,” says Lukas Hartwich, a managing director at Green Street Advisors. “The biggest tailwind for the industry continues to be the nascent demographic wave of seniors, which is just around the corner, while the biggest headwind will likely continue to be supply growth and labor cost pressure,” adds Hartwich.
Survey methodology: The WMRE /NIC research report on the seniors housing sector was conducted via an online survey distributed to WMRE readers in June. The 2021 survey results are based on responses from 189 participants. The majority of respondents hold top positions at their firms with 50 percent who said they were either an owner or C-suite executive. Respondents also represent a cross-section of different roles in the seniors housing sector, including investors, lenders, developers, brokers and owner/operators.