The senior housing industry has faced many challenges in recent years — among them, a pandemic-induced labor crisis, dislocated debt markets, limited capital and suppressed construction rates — but the sector is now poised for significant growth. On top of continued skyrocketing demand, normalizing labor markets and decompressed margins, the Fed recently announced interest rate changes that will further revitalize investment and development opportunities for senior housing and generally give a big boost of confidence to the sector.
Demand Continues to Grow
In addition to falling interest rates, senior housing faces significant opportunity due to unprecedented demand. America is experiencing a historic age wave. The number of people 80 years and older will increase tremendously over the next 25 years, with nearly 17 million “new” 80+-year-olds by 2050. Absorption rates have also reached historic highs outpacing supply growth, with 1Q24 showing a 40% year-over-year increase, which bodes well for the industry. This explosive growth and unwavering demand are perpetuating a supply gap, creating a dire need for investment and development in the sector and presenting a generational opportunity for industry stakeholders that will result in substantial returns and long-term growth.
Supply Lags Behind Demand
The status quo pace of senior housing development is insufficient to meet the current or projected need. Only 0.2% of existing senior housing inventory is being replaced annually, but the industry actually needs to develop 3.5X faster to come close to satisfying demand. Starting in 2025, close to 102,000 units per year will need to be developed to meet the expected demand by 2030. If development continues at the current pace, the industry will see a $275 billion shortfall by 2030. The widening gap between supply and demand needs to be addressed immediately — not only for financial prosperity among stakeholders but also for the good of the nation’s aging population.
Interest Rate Changes Create Reenergized Growth Opportunities
Senior housing has demonstrated impressive resilience through many crises, including the pandemic, the labor crisis and capital market freezes. With the recently announced lower interest rates reinvigorating capital markets, there is much for stakeholders in the sector to be hopeful and confident about. Lower rates will ease financing for new developments, which have been stunted in recent years, enabling supply to chase demand and operators to expand. Rate cuts will help buyers and sellers move closer together, making it easier for them to strike a deal. Softened rates will also allow operators and investors to better manage debt loads and potentially improve cash flow margins. The next several years will require unprecedented levels of development to construct the 102,000 units that are needed annually to meet expected demand, and the new rates help make that possible. Investors who act now can capitalize on long-term returns in one of the most profitable real estate asset classes.
Favorable economic conditions — specifically, lower interest rates — combined with high demand and insufficient supply put senior housing in a prime position for growth and profitability. Now is an ideal time for collaboration among creative, enterprising and problem-solving professionals, including investors, operators and owners. By addressing the looming demand and supply gap, senior housing operators are poised for long-term success while meeting the critical needs of the nation’s aging population.
For more detailed analysis and insight, take a closer look at NIC MAP Visions’ Senior Housing Market Outlook, a helpful guide for making strategic decisions and asset allocation plans.
About the Author: Arick Morton is the CEO of NIC MAP Vision, the trusted, single source for senior housing supply, demand & operational data.
