The U.S. population over the age of 65 is expected to increase by 7 million people over the next five years, a shift that will drive significant changes in the CRE landscape. Two categories in particular will be impacted – senior housing and medical office buildings.
According to a Marcus & Millichap analysis, the demand for independent living, assisted living, memory care facilities, and continuing care properties is poised to rise dramatically. The majority of senior housing occupants are over 75 years old, and this population is expanding by at least 4% per year. That means more than 600,000 additional units will be needed over the next five years to meet their needs. During its peak construction phase in 2019, only 60,000 senior housing units were delivered.
Occupancy rates in senior housing facilities have returned to pre-pandemic levels in the high 80% range, according to the report. Rent growth is outpacing most other property types as well.
In addition, people over the age of 65 visit a doctor more than seven times per year on average, while those between the ages of 18 and 44 make fewer than two visits per year to a physician. An increase of 7 million people to the 65-plus population will generate an additional 23 million doctor visits per year. This will likely increase demand for medical office space, the report said.
About 8.4 million square feet of medical office space was added in the past year, and although vacancy rates have ticked up to 9% recently, increasing demand should push vacancy rates lower and boost rent growth, said the report.
Both senior housing and medical offices are contending with labor shortages.
“Seasoned operators with strong existing teams will be best positioned to capitalize on the sector's robust growth outlook,” said Marcus & Millichap.
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