Bryan Lockard, executive managing director and head of healthcare and alternative real estate at JLL Value and Risk Advisory, outlined specifics as to the growing trends in the seniors housing market as detailed in the JLL 2024 report.

We began our conversation discussing why green shoots (a term used to describe signs of economic recovery or positive data during an economic downturn), are starting to emerge in the capital markets benefiting the seniors housing.

“Green shoots are starting to emerge due to the decline in the 10-year treasury rates by approximately 100 basis points from late October 2023 to early January 2024,” Lockard told Valuation Review. “This decline is fostering a more favorable financing environment and is expected to lead to a gradual improvement in investor sentiment, indicating that the commercial real estate markets, including seniors housing, might be approaching their bottom and starting to recover.”

There are some specific market fundamentals Lockard sees moving in a positive direction within the seniors housing sector.

He noted the following:

• Improved Occupancy and Rent Growth: Stabilized occupancy has trended upward over the past 10 quarters, reaching 86 percent, with rent growth remaining intact at 5 percent through the third quarter of 2023. Continuous improvement in these fundamentals is anticipated.
• Regional Performance Variances: Northeast markets are expected to show the strongest near-term performance. Conversely, markets in the Southwest and Southeast might experience downward pressure on occupancy and rent growth as new supply is introduced.
• Slowing Construction Starts: There’s a significant slowdown in construction starts, reaching the lowest levels since the great financial crisis. This reduction in new supply is critical for meeting the demand at peak levels, which requires an increase in supply growth by 35,000 units per year starting immediately.
• Affordability Challenges: The issue of affordability remains unresolved, with projections indicating that over half of the middle-income senior segment will not have adequate finances to afford traditional assisted living by 2029.
• Operational Innovations and Partnerships: Operators are expected to learn to scale, and partnerships between operating companies and property companies are set to evolve. There is an acceleration of trends and innovations in technology, integrated care and care delivery models, infrastructure, and design, along with greater brand diversification.

Lockard gave us his thoughts, based on the JLL report, whether or not there will be an increase in investment exposures to seniors housing in 2024.

“Based on the report, we anticipate an increase in investment exposures to seniors housing in 2024 due to a variety of factors,” he told us. “This is part of a broader trend where capital is moving towards sectors, like seniors housing, with compelling demand and growth prospects. Current market conditions are creating opportunities for investors to acquire high-quality seniors housing real estate at below replacement cost, which presents a significant incentive for increasing investment in this sector.

“Additionally, the seniors sector stands to benefit from long-term demographic changes, with an aging population fueling demand for seniors housing,” Lockard said. “Investors are targeting these alternative sectors that are expected to see sustained growth due to these demographic trends. A significant portion of respondents to the Q4 2023 survey indicated they are looking to increase their exposure to the seniors housing sector in 2024, with another group aiming to maintain their current level of exposure. Only a small fraction of respondents plan to decrease their exposure, highlighting a general optimism and bullish outlook for the sector.”

As to where the strongest opportunities exist in the sectors, Lockard said it is in the seniors housing sector, according to the end-of-year 2022 survey and the fourth quarter 2023 follow-up, particularly in assisted living, active adult and independent living.

The assisted living segment overtook active adult as the most sought-after investment subtype by the end of 2022 and maintained its position by fourth quarter 2023. Assisted living is highlighted for its strong demand due to the aging population’s increasing need for care services.

Active adult, which previously was the most targeted investment opportunity before being overtaken by assisted living, remains a top investment choice. These communities cater to the lifestyle preferences of active, older adults, offering a mix of independence and community living.

Finally, Lockard shared, independent living rounds out the top three, offering a blend of independent lifestyle choices for seniors who do not yet need regular assistance. Independent living provides amenities and services that appeal to seniors looking for minimal care options but high-quality living environments.

“These segments reflect a broad spectrum of investment opportunities within the seniors housing space, driven by demographic trends, changing preferences, and the evolving needs of the aging population,” Lockard said.

The conversation then centered on some of the key themes addressed in the report, starting with occupancy rebounds and investor confidence. The 2024 Seniors Housing Report addresses several key themes, among which occupancy rebounds and investor confidence stand out due to their significant impact on the sector's recovery and growth prospects:

Regarding occupancy rebounds, Lockard said we’ve seen a substantial recovery in occupancy levels from the lows experienced during the COVID-19 pandemic, specifically stabilized occupancy in primary markets, which had dropped to 80.3 percent in first quarter 2021 and recovered to 86.3 percent by fourth quarter 2023. Secondary markets saw an even more significant rebound, with occupancy increasing by 8 percentage points to 88.1 percent in the same period.

“Occupancy growth recovery is attributed to several factors, including high and net positive absorption coupled with below-average inventory growth. This combination has led to robust occupancy growth in seniors housing,” Lockard said. “Sustained positive absorption is another. Since Q2 2021, when absorption turned positive, primary markets have witnessed net absorption at 1.84 times the average quarterly amount seen in the two years prior to the pandemic. Additionally, inventory growth over the past year was 50 percent lower than in the year leading up to the pandemic, aiding occupancy growth.

“The demand driving these occupancy rebounds is largely attributed to the aging baby boomer generation,” he added. “Forecasts suggest that the population aged 75-plus will grow by 18 percent over the next five years and double by 2045. Despite the challenges posed by higher financing costs and market uncertainties, interest in seniors housing investments remains robust.”

We asked Lockard where he sees things stand as far as capitalization rates, construction and demand, private capital engagement and market diversity.

“There’s a marked slowdown in construction starts across all commercial real estate, including seniors housing, driven by a more expensive financing environment, elevated construction and labor costs, and a slowdown in demand growth,” Lockard said. “This slowdown in inventory growth aids the performance of existing properties. Construction starts, which saw some rebound post-pandemic, have most recently plummeted by 55 percent in primary markets and 53 percent in secondary markets from recent peak levels.

“Despite financial challenges for starting new constructions, demographic patterns show significant opportunity for continued seniors housing development, hinting at a demand-driven market that could potentially outpace current supply growth trends,” he added. “The buyer pool for seniors housing assets has seen a higher-than-normal share of private buyers in the past 18 months, with institutional investors’ share of purchases decreasing significantly from 28 percent in 2019 to 5 percent in 2023. This shift suggests private capital has taken advantage of a less crowded buyer landscape; a trend also observed across other property sectors. Investment in alternative sectors, including seniors housing, student housing, and medical offices, continues to capture a growing share of the total investment volume, increasing from 8.4 percent to 13.1 percent over the past decade. This rise indicates a shift of capital into smaller sectors with compelling demand and growth prospects. The seniors housing sector, in particular, stands out as one of the three largest alternative sectors in terms of three-year investment volumes.”

Lockard said these insights underline a landscape where slowing construction and evolving capital sources — particularly the rise of private capital — are significant trends. Despite financial and operational challenges, the long-term growth prospects driven by demographic shifts continue to attract investment into the sector. The diversification of the market and the increased focus on alternative investments highlight the resilience and evolving nature of the seniors housing industry.

There were also demographic changes post-pandemic, which significantly contributed to the growth of seniors housing, Lockard told us. Key insights from the 2024 Seniors Housing Report related to these changes were the aging baby boomer generation, growth of the 80-plus population with a 75-plus population forecast.

“Older populations are projected to grow faster than any other age cohort in the U.S. over the next 10 years as baby boomers continue to age beyond retirement years. More than 10,000 people turn 65 years old every day in the U.S., according to the U.S. Department of Health & Human Services,” Lockard said. “The 80-plus population in the U.S. is expected to grow by nearly 50 percent from 13.9 million to 20.8 million in the next decade. This dramatic increase underscores the substantial wave of pending demand for additional seniors housing and nursing care facilities, compared to a moderate total U.S. population growth projected at 4.7 percent during the same period. The population aged 75-plus is forecasted to grow by 44 percent in the next 10 years, which is significantly higher compared to just a 5 percent overall population growth. This demographic shift highlights the growing need for seniors housing as a larger segment of the population enters the age range typically associated with higher demand for such housing options.”

Lockard spoke of a bright future ahead for seniors housing as the commercial properties industry moves forward. For continued growth in the seniors housing sector through 2024, certain economic conditions are pivotal, including the wave of retirees driving demand, along with construction and development.

“For the seniors housing sector to thrive amidst these conditions, a balanced approach to managing the existing supply while catering to the burgeoning demand is necessary,” he added. “Financial accessibility and affordability will also play crucial roles, as will innovation in care delivery and housing solutions that cater to the diverse needs of the aging population.”