The senior housing investment sector is poised for significant growth, driven by demographic shifts that see the 80+ age cohort projected to increase by 36% over the next decade, particularly as the first Baby Boomers reach this milestone in 2025. This demographic expansion will likely sustain a trajectory of heightened demand, evidenced by annual absorption rates surpassing 35,000 units over the past three years, a stark contrast to fewer than 20,000 units annually from 2015 to 2019.
The senior housing investment sector is set for growth, with the 80+ age cohort projected to rise 36% in the next decade.
Importantly, approximately 60% of seniors are expected to shift between housing types between ages 65 and 84, indicating a substantial market opportunity for investors.
As of Q4 2024, senior housing occupancy in primary and secondary markets reached 87.7%, up from 85.6% the previous year. A total of over 950,000 occupied units signifies a surge from 876,000 in Q1 2020, with stabilized properties demonstrating occupancy rates holding at 88.8%. Significant demographic tailwinds are expected to drive this growth further, underscoring the urgency for investors to capitalize on these trends. Furthermore, nearly two-thirds of respondents expect senior housing cap rates to decrease in the next 12 months, indicating growing confidence in the market.
However, to accommodate the projected demand, the sector requires the addition of more than 250,000 units by 2027, while only 21,750 units were under construction as of Q1 2025, suggesting a critical supply-demand imbalance.
In terms of capitalization rates, the average for senior housing has declined by 12 basis points in the last six months, with Class A Assisted Living facilities experiencing a significant reduction to 7.0%.
Sentiment among investors remains bullish, with 57% anticipating further compression of cap rates over the next year, a marked increase from prior surveys. This heightened interest is reflected in an uptick in rolling four-quarter volume to its highest since Q2 2022, as investors pivot from ground-up development to acquiring existing assets at below replacement cost.
Forecasts predict annual rent growth exceeding 5% over the next three years, with top-quality independent living communities positioned to capitalize on this trend.
Consequently, the ongoing recovery in senior housing investment presents compelling opportunities for astute investors.
