CBRE, one of the nation’s leading real estate service firms, recently released its Cap Rate Survey, which contained a plethora of information that senior housing industry participants will find interesting. Overall, the report generally confirms the attractiveness of senior housing assets and also provides some insight into where the industry might go in the future. Industry participants and investors who are seeking capital to take advantage of senior housing’s strong dynamics should contact the Chicago-based financing firm Cambridge Realty Capital to learn more about the many different financing programs that it offers for acquisitions and other purposes as well.
The Cap Rate Survey
According to the Cap Rate Survey, primarily because of the aging of the population, demand for senior housing continues to grow and this will be the case for many years to come. The report points out that there are roughly 76 million baby boomers in the United States, accounting for approximately 25% of the nation’s population. It projects that the increased demand caused by the aging of the population will lead to a significant supply shortage by 2024 and that roughly 40,000 senior housing units will need to be added each year in order to satisfy peak demand levels, which it projects will be reached in 2044. The report also states that construction activity is taking place at the fastest rate the industry has seen in years and that at the current construction rate, roughly 16,500 units will be built this year.
Some analysts have voiced concerns that increased construction will lead to oversaturation in the marketplace and while the report states that this could happen in some isolated areas, generally speaking, it is not something to be overly concerned about because of the widespread demand for senior housing services. This demand has already been proven by increased occupancy rates for all senior housing property types, except skilled nursing facilities. However, because of improving operating efficiencies and an increased focus on its mix of residents, even though its occupancy rates have declined a little, net operating income in the skilled nursing sector has actually ticked up slightly.
With respect to cap rates, CBRE polled a number of industry professionals on their 12-month outlook and found that 53% of them do not expect cap rates to change during the next 12 months, 26% of them expect cap rates to increase, and 16% of them expect cap rates to increase, but at a lower rate than increases for other types of properties.
Overall, CBRE expects prices for senior housing properties to appreciate during 2014 and they believe that the industry is poised for future growth as well. They point to a number of reasons for this, including the need for additional facilities because of the aging of the population, the sector’s resilience to economic downturns relative to other property types, new sources of capital such as non-traded REITs, and improvements in operations that have occurred because of technological advances. CBRE’s positive outlook on the industry is supported by data from other sources including the United States Census Bureau and the National Investment Center for Seniors Housing and Care Industry. Accordingly, 2014 is shaping up to be a successful year for the industry and the outlook for future growth continues to remain positive as well.