Despite rising interest rates and a tough lending environment, the seniors housing sector is expected to see rental rate increases this year, according to a new survey from CBRE.
Findings from the survey showed that over three-quarters of investors anticipate rental rate increases of 3% or more across most housing classes for seniors, except for skilled nursing, over the next 12 months. These increases are being attributed to rising development and inflation-driven operating costs.
According to the survey, the assisted-living class is expected to see the greatest increase in rental rates, with 28% of investors forecasting rent growth above 7% over the next 12 months—this is up from 15% of investors last year. No rental decreases are expected for any of the sector’s asset classes.
The biggest investment opportunity in the sector this year, according to 37% of survey respondents, is active adult due to younger baby boomers entering their retirement years. Assisted living at 29% and independent living at 13% follow as the next most popular investment opportunities.
A significant change from last year’s survey, 50% of respondents said they expect cap rates to increase this year compared with only 27% of respondents in 2022.
“Although there are challenges, many investors still consider seniors housing to be an attractive asset class with rental rates trending upward due to the need-based demand and constraints on future supply,” said Daniel Lincoln, leader of Seniors Housing and Healthcare for CBRE’s Valuation & Advisory Services. “Sustained higher interest rates have made it difficult to finance deals, and other challenges, such as staffing shortages, are expected to persist throughout the remainder of the year.”