With the pandemic in the rearview mirror and heightened investor interest, the retirement home market is in full recovery, according to JLL’s latest investor survey, released Thursday.
Professional services firm’s fifth annual senior housing investor survey and outlook finds investors are ‘optimistic’ about housing and senior care sector due to ‘silver wave’ projected and the resulting shortage of supply.
According to the survey results, 80% of respondents – up from 48% in last year’s survey – say the worst of the pandemic is over and expect market fundamentals to continue to improve. improve. And 76% of investors surveyed said they plan to increase their exposure to senior life over the next year, showing good market prospects for 2022 and beyond, according to JLL advisers.
“We have seen the market stabilize as fundamentals have continued to improve over recent quarters,” JLL Chief Executive Brian Chandler said in a press release. “Occupancy rates in several markets are beginning to return to pre-pandemic levels.”
At the onset of the pandemic and through 2020, the senior housing and nursing care sectors saw their lowest transaction volume since 2012 – investment volume was down 43% year-on-year another in the fourth quarter of 2020. Transaction volumes rebounded in the fourth quarter of 2021 – a 61% increase from the first quarter – and reached levels last seen at the end of 2019.
This year, investor activity is expected to continue to increase from last year, with market fundamentals rebounding due to lower pandemic restrictions, rising demand and rebounding occupancy rates to from their pandemic lows. .
Some investors are turning to alternative asset classes for growth, such as senior living. The working adult over 55 (31%) this year edged out assisted living (28%) as the most sought-after investment opportunity. Skilled nursing and independent living tied for next level of opportunity at 17%.
“We see demand improving every quarter, so the long-term opportunity is quite attractive for institutional capital looking to diversify their portfolios or hedge against riskier investment classes,” the director said. general of JLL, Bryan Lockard. “Additionally, capital for commercial real estate investment continues to accelerate to historic highs, reaching $243.7 billion in February 2022.”
Supply and demand
Although the population over 80 is the main driver of demand for senior housing, the new year has brought a new 10-year investment cycle that will include baby boomers. The influx of new residents moving into senior residences is expected to create a shortage of supply, amplifying demand.
JLL predicts that the sector will be undersupplied by 600,000 units by 2045, suggesting supply growth must increase by more than 25,000 units per year to meet peak demand. Although construction activity has increased in primary markets, it continues to lag in secondary markets.
“Seniors are looking for more affordable, yet still vibrant, communities in which to retire, and that’s prompted developers to follow suit,” Chandler said. “Current construction activity is heavily concentrated in Sun Belt markets, reflecting an acceleration in migration patterns among all age groups, but especially those in the 55+ cohort.”
Occupancy and rent
Occupancy continued to recover throughout 2021 after plummeting to record lows during the height of the pandemic. Occupancy levels stabilized ended the year at 82.8% in primary markets and 83.7% in secondary markets, but JLL advisers note that occupancy still has some way to go before reach pre-pandemic peaks.
With the over-75 population growing and new construction falling significantly, JLL advisers expect occupancy rates to continue to improve through 2022 and beyond.
At the same time, senior residence rents have been increasing since the fourth quarter of 2021, when primary and secondary market rents increased by 2.4% on an annual basis compared to 1.6% at the start of 2021.
The survey of more than 100 respondents in the fourth quarter of 2021 included debt providers, investment sales and developers specializing in the housing and aged care sectors.