Imminent Growth in Senior Assisted Facilities. As more residents head into retirement, the need for health care services and facilities is likely to grow. Real estate investment in properties like senior assisted living facilities could thus emerge as an interesting new market sector.
While senior living facilities may be less well known compared to other commercial real estate property types, projected growing demand could make them worthy of closer scrutiny. According to the National Real Estate Investor, the National Investment Center for Seniors Housing & Care said that, within the senior housing sector generally, independent living facilities are driving the growth in the market, with occupancy rates rising.
Occupancy Levels Growing for Senior Housing
The NIC said the fourth quarter report showed occupancy at independent living facilities rose to 91.3 percent, continuing an upward trend. National Real Estate Investor reported that senior housing occupancy first surpassed the 90 percent mark in the third quarter 2014.
The rates of occupancy at independent living facilities outpaced those at assisted living facilities, which had 89.3 percent occupancy in the fourth quarter.
Chuck Harry, NIC's managing director, said the reason for this is that independent living facilities' had a higher annual inventory increase compared to assisted living.
"The actual level of construction for independent living was at about 7,600 units in the fourth quarter, it's the highest level since 2009, but is a much more reasonable amount," Mace said. "On the plus side, occupancy continues to go up for both assisted living and independent living, which shows the entire seniors sector has strength."
How Aging US Population Affects Real Estate
Demand for senior housing will likely increase as the U.S. population ages, the Counselors of Real Estate said. According to the U.S. Census Bureau, seniors will represent 20 percent of the U.S. population by 2030. More than 500,000 people are expected to be age 65 and older each year, which could fuel the senior housing sector.
"Growing numbers of seniors are occupying senior-specific residential real estate, suggesting increased acceptance of the senior housing lifestyle," the 2008 CRE report stated. "The penetration rate, or percentage of senior households choosing to move to senior housing, has recently been increasing at a rate of approximately 4 percent per year."
The report said the compound annual growth rate for seniors moving to senior housing averaged about 6 percent each year over the past 10 years.
As developers break ground on projects during the second quarter of 2015, RBC Capital Markets forecasts inventory for senior housing will likely pick up, National Real Estate Investor reported.
Senior housing investing, both independent and assisted, is likely to increase as demand for these communities rises from the growing number of retirees.
Where Senior Housing Investments Are Headed
The National Association of Real Estate Investment Trusts reported health care real estate investment trusts have outgrown other property types, with manufactured homes and self-storage facilities being the only exceptions, The Wall Street Journal reported. With interest growing in health care real estate, investors could increasingly partner together to raise money for development projects and acquisitions and continue the upward trend in senior housing construction.
NIC reported there were 11,268 units of assisted living facilities under construction at the end of 2014, higher than the historical average of 5,450 units for each quarter between 2008 and 2011.
Investors anticipate higher revenue from senior living apartments. The National Council of Real Estate Investment Fiduciaries said the value of senior living apartment complexes surged 18.7 percent in 2014, outperforming retail (13.1 percent), office (11.5 percent) and apartment (10.3 percent) value increases.
Local markets in Texas and other states with real estate booms could see higher rates of senior housing inventory, Bloomberg reported.
"There's been a little bit of an uptick - we're mindful of that," said Brookdale CEO T. Andrew Smith, at the Barclays Plc conference in March 2014, in reference to senior housing supply. "You have to go down and look at what's happening in each local market. We just don't see that much. It's not to say that there is none, but we don't see that much truly, directly, adversely new competition."
With supply expanding, real estate companies are confident that demand will continue to grow without reaching its peak for decades. Jacob Gehl, managing director at Blueprint Healthcare Real Estate Advisors, predicted peak senior housing demand will hit in 15-20 years.
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