Capitalization rates are generally higher for senior housing deals than found in the multifamily space, with transactions over $10 million typically pricing in the low-7% to mid-9% range in 2024. At the market’s peak in 2021, the spread was much tighter, oscillating in the 7% to 8% range, more than 200 basis points above the cap rate lows for multifamily sales.
When considering senior housing today, Kliewer said investors are placing more emphasis on in-place cash flow versus pro forma rents, which is a shift from a few years ago when multifamily and senior housing investors were focused on a strong rent growth story to juice income. “Best-in-class communities in strong markets offering a wide range of services trade in the mid-6% cap range,” said Kliewer.
Demographic trends are helping to draw investors into the senior housing space. The aging U.S. population and the demand for senior housing have been two of the main catalysts for the resurgence in transaction volumes, according to Continuum Advisors’ Jordan and Kliewer. Demand is also strong in markets with a high percentage of adult-age children. States such as Florida and Texas have seen their populations grow exponentially over the past few years.
“Demand is rising in markets where adult children reside, as today’s seniors are far more likely than previous generations to relocate closer to their families. This has led to some of the strongest senior housing growth occurring in markets that are also seeing an influx of younger adults and families. Florida is the perfect example of this trend, as wealthy millennials continue to migrate south even after the pandemic,” said Jordan.
“Demographic growth and the ‘silver wave’ are frequently discussed and have been the main drivers behind the increased interest in the senior housing sector. With such strong demographic demand, it is easy to see why the senior living sector has become highly sought after,” added Kliewer.
Oxford Economics forecasts that demand for senior housing will expand over the next 10 years. Overall, the U.S. population aged over 80 has increased by just below 3% annually since 2020. That population growth rate will accelerate to 5% annually between 2025 and 2029 as baby boomers reach that age threshold.