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If not offset by record-setting rental rate growth, expected capitalization rate expansion and rising operating expenses could lead to a decrease in senior living and care pricing this year. That’s according to data from a BBG Real Estate Services’ survey undertaken in January.

BBG solicited responses from US investors, developers, lenders and brokers to identify trends expected to impact the long-term care market this year. Property types analyzed in the survey include active adult, independent living, assisted living, skilled nursing and continuing care retirement care communities.

“This survey provides valuable insights on the investment opportunities and challenges facing this sector in the current post-pandemic climate,” RJ DeBee III, managing director and national seniors housing practice leader, said in a statement Monday. 

According to the survey results, capitalization rates across all sectors of long-term care are expected to remain flat or expand in 2023. Skilled nursing and CCRCs are predicted to post the highest cap rates. Independent living had the greatest number of responses predicting compression of cap rates. Active adult capitalization rates were the lowest of the care/service levels surveyed, followed by independent living.

Rental rate trends for all care/service levels are expected to continue to increase significantly in 2023. Almost 90% of respondents said they are expecting rental rate growth in 2023 For assisted living and memory care, most respondents said they expect to see 5% to 10% growth; approximately 15% of respondents said they project more than 10% growth in rental rates this year.

The majority of respondents (77%) said they expect operating margins to remain flat or decline in 2023, “given the continued increasing cost of staffing, inflationary pressures on supplies, and notably increasing property insurance expense.” They also said they expect operating expenses to increase by 3% to 5% over the course of the year.

Despite headwinds, “the longer-term trend of providing adequate housing to meet the demands of an aging population makes this asset class a highly attractive investment option,” DeBee said.