The senior housing sector expects capitalization rates for all care levels to remain flat or compress this year, in line with 2024 trends, while rental rates for all levels are expected to grow significantly, according to BBG’s third-annual seniors housing investor survey.
The survey compiled responses from U.S. investors, developers, lenders and brokers about trends expected to impact the seniors housing market in several areas, including capitalization and rental rates, stabilized occupancy, operating expenses and other key market performance metrics.
Many of the findings of this year’s survey show market optimism, according to R.J. DeBee III, managing director and national seniors housing practice leader at BBG. “In fact, over 96% of respondents have a positive or somewhat positive outlook for the 2025 seniors housing real estate market,” he said.
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Active adult cap rates were the lowest of the care levels surveyed, followed by independent living. Memory care cap rates have increased since 2019, with only the Class A primary markets sector coming in below 8.5%. Skilled nursing cap rates were the highest of all care levels, which is expected due to increased acuity, said the report. Continuing Care Retirement Community and Life Plan Community (CCRP/LPC) cap rates mirrored the aggregate of the other care levels.
Meanwhile, rental rate trends for all care levels are expected to grow significantly this year, consistent with post-pandemic trends. More than 90% of respondents expect rental rate growth for property types excluding care. More than 40% of respondents expect prices to grow more than 5% for assisted living and memory care facilities and over half expect rents to grow between 1% and 5% in this category.
Active adult properties are expected to have the highest stabilized occupancy and skilled nursing facilities are expected to have the lowest occupancy. The report noted CCRC/LPC reported the largest spread in stabilized occupancy when compared with other care levels, which is expected given the large discrepancy in acuity mixes and buying structures associated with these communities.
The majority of respondents project absorption of between three and eight units per month in the active adult, independent living and CCRC/LPC categories. Absorption will be bolstered by a growing population of people over the age of 75, which is not expected to peak until 2035.
Nearly two-thirds of survey respondents indicated they expect margins to expand in 2025, up from about half of respondents last year. The most frequent response was a projected net increase of around 3% for the third consecutive year. However, potential headwinds, including rising staff costs, inflationary pressures on supplies and increased property insurance expenses, could constrict margins, said the report.
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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.
