The senior living sector posted a total return of –1.15% in the third quarter, according to the National Investment Center for Seniors Housing & Care. That’s after posting a positive total return of 0.48% in the second quarter and a positive return of 0.11% in the first quarter.
“Short-term total returns for senior housing slightly outperformed the broader NPI [National Council of Real Estate Investment Fiduciaries Property Index], which posted a total return of –1.37% in the third quarter,” NIC Senior Principal Caroline Clapp wrote Wednesday in a blog post. “Positive income returns for senior housing were outweighed by negative appreciation, driving negative total returns for the [third] quarter.”
The senior living income return in the third quarter was 0.99%. According to Clapp, this rate was in line with the apartment sector (0.99%) and stronger than the industrial sector (0.88%), but it still fell below the overall NPI (1.07%).
The senior living appreciation (capital/valuation) return was negative for the fifth consecutive quarter, at –2.13%. Clapp noted that this marked the lowest appreciation return since the second quarter of 2020.
“Overall, current economic and capital market conditions drove negative appreciation returns in all sectors. Further, many investors have reduced their appreciation expectations for senior housing as the sector has not yet recovered to its pre-pandemic occupancy rate,” the financial analyst said. “The appreciation return is the change in value net of any capital expenditure incurred during the quarter.”
On a longer-term basis, she noted, the 10-year return for senior living (8.7%) is among the strongest of the main property types and and has outperformed the NPI 10-year annualized total return of 7.40%
The performance measurements cited for senior living reflect the returns of 214 senior housing properties valued at $11.39 billion in the third quarter. The property count and market value were the highest in the NCREIF time series for senior living, NIC said.
“It is notable that the number of properties tracked by this index has grown significantly since the beginning of the pandemic, up from 134 properties in the first quarter of 2020 that were valued at $6.3 billion,” according to Clapp. “The additional properties may be influencing the overall performance returns of the index.”
