Most senior housing real estate professionals and investors say cap rates have either remained unchanged or decreased in the past six months, according to CBRE’s Senior Housing and Care Investor Survey for the second half of 2024. Respondents largely predicted flat rent growth for the year ahead.
Survey respondents included private capital investors, brokers, developers, institutional investors and REITs.
Fifty-four percent of respondents said cap rates were unchanged, while others reported an average decrease of eight basis points. Skilled nursing cap rates fell 7 bps after increasing by 11 bps the previous six months. The average cap rate for active adult communities decreased by an average of 11 bps during the past six months, offsetting its performance of the six months prior. Independent living and assisted living cap rates dropped by an average of 10 bps, and continuing care retirement community cap rates fell by 11 bps.
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Memory care facilities had no change in cap rates while free-standing memory care was the only category with increased cap rates, rising one to two bps to an average cap rate of 9.5%. Cap rates for the non-core market, class A active adult and assisted living decreased the most, falling 14 bps to 6.5% and 15 bps to 7.6%, respectively.
Cap rate spreads between asset classes were unchanged and the average spread between core and non-core assets remained at 54 bps.
Nearly half of the survey respondents said they expect rental rate increases of between 3% and 7% over the next 12 months for active adult, independent living, assisted living and memory care facilities. That is down from 63% of respondents in the previous survey who thought rates would increase. About 26% indicated they expect no rent growth for active adult communities next year.
No respondents expected rent decreases for any asset class except skilled nursing, said CBRE. In addition, no respondents reported underwriting rent growth above 7%, compared with the 12% of respondents who did in the April 2024 survey.
“The fundamentals of the seniors housing sector are improving, driven by constrained new supply and surging need-based demand,” said Daniel Lincoln, EVP for CBRE Valuation & Advisory Services and national practice leader of the firm’s seniors housing and healthcare specialty practice. “Investor sentiment appears to have reached an inflection point, as the demand for well-performing assets is gaining momentum.”
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
