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With the pandemic in the rearview mirror and increased investor interest, the senior living market is in full recovery mode, according to JLL’s latest investor survey, released Thursday.

The professional services firm’s fifth annual Seniors Housing Investor Survey and Outlook reveals that investors are “bullish” on the seniors housing and care sector due to the projected “silver wave” and expected subsequent supply shortage.

According to survey results, 80% of respondents — compared with 48% in last year’s survey — say the worst of the pandemic has passed and they expect market fundamentals to continue to improve. And 76% of polled investors said they expect to increase their exposure to senior living in the next year, demonstrating a healthy market outlook for 2022 and beyond, according to JLL advisers.

“We have witnessed the market stabilizing as the fundamentals have continued to improve over the last few quarters,” JLL Managing Director Brian Chandler said in a press release. “Occupancy rates in several markets are beginning to get back to pre-pandemic levels.”

Investor activity

At the onset of the pandemic and through 2020, the seniors housing and nursing care sectors saw their weakest transaction volume since 2012 — investment volume was down 43% on a year-over-year basis in the fourth quarter of 2020. Transaction volumes rebounded in the fourth quarter of 2021 — a 61% increase over the first quarter — and rose to levels last seen at the end of 2019. 

This year, investor activity is expected to continue pacing higher than last year as market fundamentals bounce back due to pandemic restrictions dropping, demand increasing, and occupancy rates rebounding from their lowest pandemic points. .

Some investors are turning to alternative asset classes for growth, such as seniors living. The active adult 55-plus (31%) moved ahead of assisted living (28%) this year as the most sought-after investment opportunity. Skilled nursing and independent living were tied in the next tier of opportunities, at 17%.

“We are seeing demand improve each quarter, so the long-term opportunity is quite attractive for institutional capital looking to diversify their portfolios or hedge against riskier investment classes,” JLL Managing Director Bryan Lockard said. “Additionally, capital for commercial real estate investment continues to accelerate to all-time highs, reaching $243.7 billion in February 2022.”

Supply and demand

Although the 80-plus population is the main driver of demand for senior living, the new year brought a new 10-year investment cycle that will include the baby boomers. The influx of new residents moving into senior living is expected to create a supply shortage, magnifying demand.

JLL projects that the sector will be undersupplied by 600,000 units by 2045, suggesting that supply growth must increase by more than 25,000 units per year to meet peak demand. Although construction activity increased in primary markets, it is still lagging in secondary markets.

“Seniors are seeking more affordable, yet still dynamic, communities in which to retire, and this has prompted developers to follow suit,” Chandler said. “Current construction activity is highly concentrated in Sun Belt markets, reflecting an acceleration in migration patterns among all age groups, but especially those in the 55-plus cohort.”

Occupancy and rent

Occupancy continued to recover throughout 2021 after falling to record lows at the height of the pandemic. Stabilized occupancy rates closed the year at 82.8% in primary markets, and 83.7% in secondary markets, but JLL advisers note that occupancy still has a way to go before it reaches pre-pandemic peaks.

With the growing 75-plus population and new construction down significantly, JLL advisers expect that occupancy rates will continue improving through 2022 and beyond. 

At the same time, senior living rent has been increasing since the fourth quarter of 2021, when primary and secondary market rents were up 2.4% on an annual basis compared with 1.6% at the beginning of 2021.

The survey of more than 100 respondents during the fourth quarter of 2021 included debt providers, investment sales and developers who specialize in the seniors housing and care sectors.