Baby boomers have already begun to retire, and the oldest of the cohort will turn 75—the youngest age at which one usually enters the segment of senior housing comprising continuing care retirement communities—in 2021.
The demographic shift has caused investors to take an interest in senior housing, according to Chicago-based research firm JLL’s Year-End 2017 Seniors Housing Investor Survey.
“Senior housing has historically been viewed as somewhat of a niche product due to the size of the sector, especially in comparison to others such as office, multifamily, or industrial,” says Charles Bissell, managing director, JLL Valuation & Advisory Services. “Now, we’re seeing a lot more investor appetite for these properties, driven mainly by the demographic shift that will result in significant growth in demand for senior housing over the next three to 20 years.”
By the end of that time frame, demand for senior housing is predicted to double.
“Developers and investors see this as a market that they need to be in, and many of them are trying to establish a foothold in the sector now, to prepare themselves to be part of that growth as it occurs,” adds Bissell.
Smart investors are choosing properties and sites wisely, paying close attention to the kind of housing seniors want.
“Seniors are looking for choices in the products and services they can access, so it’s important for communities to offer more than one level of care,” says Bissell.
The JLL survey, which surveyed nearly 250 investors, operators, developers, and lenders in the seniors housing and health-care space, found that 86% of respondents ranked continuum-of-care facilities with both independent and assisted living on one campus as very or extremely desirable.
“What consumers are desiring now are facilities where you can move in at whatever level of care you need, but transition to another level should the need arise,” Bissell adds. “So a resident could move in to independent living when they're healthy, and then wouldn’t have to be burdened with relocating if they need care down the road, because it’s all in the same facility.”
Housing with à la carte pricing for services is also appealing to today’s senior residents, says Bissell.
In the traditional independent-living model, a resident might have to pay for three meals a day, or housekeeping services, or an activity package whether or not they actually use it, he says. “We’re seeing an increase in facilities that offer services with à la carte pricing, where the resident can choose which services they want, like one meal per day instead of three, for example.”
Like most housing properties, location also plays a significant role in where investors are choosing to buy, and infill sites are proving attractive. Fifty-three percent of respondents said the focus on urban infill locations for new development is definitely here to stay, and 40.6% said the trend “could have legs.”
“There's been more institutional investor demand for seniors housing, and these investors are accustomed to investing in high-quality product in urban markets,” says Bissell. “Many believe boomers will want to live in urban environments as they transition into senior housing because walkability and access to services is attractive to them.”
Plus, it’s a benefit to the business model, as well.
“Infill locations are also attractive to investors because there tends to be some barrier to entry on those sites, like entitlements,” Bissell adds. “There’s protection from competition—if you’re able to build a successful project on an urban infill site, the chances of you having a competitor right around the corner are greatly minimized.”
The sector doesn’t come without its share of risk factors, however—factors that have at least a few investors wary of entering the senior housing market.
“Far and away, respondents said the biggest thing worrying them is staffing concerns. These facilities require large staffs to operate, and investors worry about how managers will be able to attract the staff, and the impact a large staff will have on their expense level,” says Bissell. All respondents ranked both rising labor costs for facilities staff and difficulty attracting and retaining qualified staff as either a high or moderate risk factor.
“The second major concern is overbuilding,” he adds. Overbuilding and market saturation was ranked as a high or moderate risk factor by 91% of the survey respondents.
“We’re seeing more concern about this in the suburban markets where there's been a lot of new supply added lately, which is another reason for the increased focus on infill.”
