More than 50% of the respondents to the 12th edition of CBRE’s “Seniors Housing & Care Investor Survey” expect capitalization rates to increase this year. That’s up from 27% in last year’s survey.
The commercial real estate services and investment company sought feedback from senior housing investors, developers, lenders and brokers throughout the United States.
“While the past two surveys focused largely on changing market conditions caused by the COVID pandemic, this year’s survey focused more on the impacts of inflation, staffing shortages and rising interest rates,” CBRE noted.
Skilled nursing was the only category among long-term care sectors covered in the report that saw a decreased year-over-year average cap rate, with a decrease of 34 basis points.
Cap rates for skilled nursing are in a “unique” place, and bed prices have stayed high for longer than expected, so the next chapter’s storyline could take several interesting paths, Bill Kauffman, a senior principal with the National Investment Center for Seniors Housing & Care, previously said in a podcast moderated by McKnight’s Long-Term Care News Executive Editor James M. Berklan.
Average cap rates for independent living, assisted living and memory care communities, however, increased by 28 basis points year over year, with greater increases seen for Class A assets than Class B assets and for core markets compared with non-core ones. Cap rates for active adult communities increased by 21 basis points year over year.
“A majority of respondents cited higher borrowing costs and a constrained lending environment as the most significant threats to the seniors housing industry over the next 12 months,” according to the report. Additionally, respondents noted staffing challenges as an ongoing headwind facing the industry this year.
Anticipated rental rate increases
More than 75% of respondents said they expect rental rate increases of 3% or more over the next 12 months across all areas except skilled nursing. For active adult, independent living, assisted living and memory care communities, the greatest percentage of respondents reported underwriting rental rate increases of 3% to 7% over the past 12 months.
“The proportion of interviewees who reported underwriting rent growth above 7% nearly doubled for assisted living, increasing to 28.1% in 2023 from 15% in 2022,” according to CBRE.
