Recession-Resilient Senior Housing Sector Positioned for Growth

Topics: Capital Markets/Commercial Real Estate

Senior housing is experiencing significant interest from potential residents as current occupancy rates return to pre-pandemic norms. Although this sector was impacted by the COVID-19 pandemic and experienced decreased occupancies, we believe favorable trends are supporting future growth. 

The Senior Housing Market

The senior housing sector comprises four distinct types of housing and services: Independent Living, Assisted Living, Memory Care, and CCRC (Continuous Care Retirement Communities, which provide all three options).

Fueling demand for these services are the more than 1-in-6 baby boomers 65 years and older. By 2040, it’s estimated that nearly 81 million Americans will have crested the 65-year age mark1

The demand for senior living communities will continue to grow through this decade and then accelerate rapidly over the next 20 years due to the aging of the population. In addition, life expectancies have been increasing, acuity levels have been rising, and the wellness and healthcare needs of seniors will have to be satisfied outside of traditional healthcare settings — with senior living expected to play an increasingly vital role. -

Notable Performance Metrics

According to the non-profit National Investment Center for Senior Housing & Care (NIC):

  • Occupancy growth rates increased for the sixth consecutive quarter due to continued strong demand that outpaced inventory growth. 
  • The occupancy rate has increased by 5.2% from a pandemic low of 77.8% in the second quarter of 2021.
  • Asking rental rates for senior housing across NIC’s primary markets saw their largest increase since NIC began reporting the data in 2006.
  • With higher interest rates expected in the early months of 2023, slower development pipelines are likely to continue, which could continue to impact inventory growth and, therefore, positively affect occupancy rates.

As a needs-based essential asset class, senior housing is considered recession-resilient, with operators generally able to sustain and raise rents as resident demand and operating costs increase. And the recent 2023 Social Security cost of living adjustment (COLA) of 8.7%, helps stabilize occupancy rates as residents are able to keep pace with operators’ rent increases.

Potential Issues Facing Senior Housing

As with any commercial real estate sector, the senior housing market faces a few unique challenges that operators must address. Foremost, staffing is a problem the entire healthcare industry is dealing with, and it has impacted senior housing. Staffing shortages were a problem across the industry prior to 2020 and were only exacerbated during the height of the pandemic. Competition for qualified staff may persist for quite some time.

Also, the quality and location of senior housing facilities will become increasingly important as a burgeoning wave of baby boomers seek senior housing services. Aging and rural facilities may be in need of significant improvements to compete with newer facilities yet may not have the capital required for enhancements. And finally, the industry is heavily regulated, and operators need to stay on top of changing regulations in order to remain compliant and sustain their licenses.

Looking Ahead

A growing cohort of seniors who desire to remain active and socially engaged is expected to continue to fuel the growth and evolution of senior housing facilities. Enhanced amenities and new technologies will increasingly allow this demographic to age in place. 

And with increasing demand for assisted living and memory care facilities, thanks to the aging American population, we believe the senior housing market is well-positioned for future growth.