Senior Housing Cap Rates Expected to Drop Over Next Year
Cap rates for the senior housing sector are likely to compress over the next 12 months, according to CBRE’s senior housing and care investor survey conducted in April. A majority of respondents reported that cap rates remained the same or decreased since October 2024, the last time the survey was conducted.
Survey respondents included brokers, private capital investors, institutional investors, developers and REITs.
The average senior housing cap rate fell by 12 basis points (bps) over the past six months. Skilled nursing cap rates decreased by 10 bps during that time after decreasing by 7 bps the six months prior. The average cap rate for active adult communities fell 20 bps between October and April, which represented the largest change from the prior survey. Independent and assisted living cap rates fell by 15 and 16 bps, respectively. Memory care was the only segment that showed increased cap rates, which rose 8 bps on average from the previous survey.
The average cap rate for core market Class A assisted living facilities dropped the most to %, down 14 bps. Average cap rates for non-core market active adult and assisted living facilities each fell by 13 bps to 6.4% and 7.4%, respectively, said the report. Free-standing memory care was the only segment to show increased cap rates, up 8 bps to an average of 9.6%.
Cap rates spreads between asset classes were essentially unchanged at +3 bps, while the average spread between core and non-core assets remained at 53 bps, according to the report.
More than half of survey respondents expect active adult, independent living, assisted living and memory care facilities to increase rents by 3% to 7% over the next year. That compares with 48% who expected rent increases during the previous survey. None of the survey respondents expect rent decreases for any senior care segment. CBRE said it expects annual rent growth of more than 5% over the next three years.
The report pointed to NIC MAP data that indicates the senior housing sector will need to add more than 250,000 units through 2026 to accommodate the rising demand from the country’s growing senior population. Only 21,750 units were under construction during the first quarter. CBRE said new construction is likely to offer fewer amenities and lower-quality interior finishes due to rising costs.
Source: GlobeSt/ALM