The average senior housing capitalization rate fell by 13 basis points year-over-year and is now below the first half of fiscal year 2020 pre-pandemic average. That’s according to the 11th edition of CBRE’s Seniors Housing & Care Investors Survey, released Tuesday.
The data are based on market sentiment of the senior housing investors, developers, lenders and brokers throughout the United States.
Class B assets had an average capitalization rate compression of 17 basis points, followed by Class A assets, which experienced a 15 basis point drop. Skilled nursing facility and continuing care retirement community capitalization rates showed the most significant movement, with compression of 19 basis points and 20 basis points, respectively. Independent living showed the least movement, with an overall compression of 5 basis points.
Despite increasing interest rates and inflation, almost 50% of respondents said they expect capitalization rates to remain flat this year, compared with 27% that expect increases. Offsets to market headwinds include prospective post-pandemic rate increases and increasing construction costs.
The majority of respondents from the independent living, memory care, skilled nursing and CCRC sectors indicated that they are underwriting rental rate increases of between 1% and 7%.
“The skilled nursing care level is highly subsidized, with less direct control over increasing rates compared with lower-[need] communities,” CBRE reported.
For operators that lost residents due to COVID-19, more than 90% of respondents said they expect absorption of one to nine units per month for active adult communities and skilled nursing facilities; 85% expect a pace of one to six units per month.
Active adult communities are proving to be the biggest draw for investors, benefiting from the leading edge of the baby boom generation, according to the survey. Assisted living and independent living ranked second and third on the desired opportunity list, respectively.
Eighty-six percent of respondents said they expect active adult and independent living communities to return to pre-pandemic occupancy levels within 18 months. When compared with responses to the 2021 survey, there was a 6% overall increase in respondents who expect a recovery within 18 month and a 102% increase in respondents expecting a recovery within six months.
