The majority of senior housing and care investors surveyed by CBRE in October said cap rates in the sector have remained steady or decreased since April, and more than 84% expect cap rates to continue compressing over the coming year. None of the respondents anticipates an increase in cap rates in 2026.
On average, senior housing cap rates fell by 17 basis points over the past six months. Skilled nursing cap rates decreased by 14 bps between April and October, following a 10-bps decline in the previous six months. Independent living communities saw the largest drop, with average cap rates falling 20 bps during the same period. Active adult and assisted living cap rates declined by 18 and 19 bps, respectively, after 48 consecutive months of increases. Memory care cap rates decreased by an average of 16 bps compared with the prior survey.
Within core markets, Class A independent living and active adult communities experienced the largest declines, down 25 bps to 6.1% and 5.5%, respectively. Cap rate spreads between asset classes remained essentially unchanged at +3 bps, while the average spread between core and non-core assets increased slightly to 56 bps.
About 69% of survey respondents expect rental rates in the sector to increase between 3% and 7% over the next 12 months, up from 57% in the prior survey. No respondents reported underwriting rent growth above 7% for the second consecutive survey, compared with 12% in April 2024. CBRE forecasts annual rent growth exceeding 5% over the next 36 months. Rental rates that make new development feasible remain roughly 15% to 20% above market rent in most core markets, though this gap is expected to narrow in 2026.
The sector will need to add more than 200,000 units by 2028 to accommodate rising demand from an aging population. According to senior housing data provider NIC MAP, only 20,034 units were under construction as of Q3, down from 21,750 units in the first quarter. Top-quality independent living communities delivered between 2018 and 2021 stand to benefit, as new construction is likely to feature fewer amenities and lower-quality interior finishes due to rising costs.
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