2014 was another banner year for senior housing as the industry saw its value rise to around $300 billion, investment and acquisition activity remained strong, new developments continued to sprout up and demand for senior housing services stayed robust as well. Accordingly, as the year draws to a close, we thought it would be instructive to take a look back at some of the reasons for the industry’s strong performance during the year.
Demand Stays Strong
In 2014, demand for senior housing services continued to increase throughout the country, largely due to the aging of the population, rising acuity levels and fewer caregivers as well. The decrease in caregivers (i.e., people between 45 and 64 who are able to care for older family members) is especially important for the industry because it has forced more of the elderly population to transition into senior housing sooner than they would have liked. Furthermore, this trend is expected to continue for the next few decades. For example, the current ratio of caregivers to those people in the country who are 80 years old or older is 7 to 1, but that ratio is expected to drop to 4 to 1 by 2030, and to 2 to 1 by 2050. The aggregate of an aging population, higher acuity levels and fewer caregivers has increased demand for senior housing during the past few years and is projected to drive demand even further in the coming decades.
In addition to favorable demographic trends, the senior housing industry also benefited from occupancy gains during the year. For example, at the end of the third-quarter, overall occupancy levels stood at 90.3%, an increase of 40 basis points from the end of the second-quarter and 100 basis points from the end of 2013’s third-quarter. Although construction is increasing in the sector, demand is rising at such a fast rate that occupancy levels should remain strong through 2015 and future years as well.
Lastly, senior housing properties consistently outperformed other property types during the year and are now considered by some analysts to be the most recession proof of all the different real estate categories. Indeed, senior housing properties generated better returns than other “core properties” such as offices, hotels, industrial facilities, retail properties and the NCREIF Property Index, or NPI as it’s more commonly known. The NPI is a composite measure of a large pool of commercial real estate assets and the fact that it is being beaten by senior housing is a clear indication of just how successful senior housing has been in generating strong returns for its investors.
Most analysts believe that the factors that made senior housing so dynamic in 2014 will continue into 2015 as well. Accordingly, industry participants and investors who are seeking to take advantage of the market’s strong dynamics before interest rates rise should contact the Chicago-based financing firm Cambridge Realty Capitalto learn more about the many different financing options that it offers for acquisitions, sale/leasebacks, joint ventures and other purposes as well.