Traders of senior dwelling properties are hitting the reset button on their methods to deploy capital in 2025, and they’re optimistic about what they will obtain forward.
However the trade nonetheless has a number of hurdles left to clear, together with affordability for residents, labor shortages and inflationary prices, rates of interest and a lingering wave of debt maturities.
That’s in keeping with the Cushman & Wakefield Senior Dwelling and Care H1 2025 report, launched this week. The most recent survey contains responses from greater than 75 trade traders.
“Elevated transaction exercise is anticipated in the course of the second half of 2025. Debt is turning into extra obtainable as lenders extra programmatically open their steadiness sheets and debt turns into inexpensive, albeit nonetheless selective,” the report’s authors wrote. “These enhancements within the debt markets may assist transfer the mountain of dry powder, $382 billion globally, off the sidelines, signaling the cusp of the following development cycle because the sturdy efficiency of the senior dwelling sector continues to seize the eye of traders.”
Traders who responded to the newest report stated they count on extra occupancy positive aspects stemming from excessive demand. Web absorption of senior dwelling models has improved because the second quarter of 2021 and has surged to an “all-time excessive” in major and secondary markets, the report states.
Lively grownup demand continues to rise, because the product sort climbed to 95.6% occupancy and lease development of 5% within the first half of this 12 months, the report famous. Lively grownup communities proceed to have working bills and underwriting corresponding to multifamily, in keeping with Cushman & Wakefield.
To reap the complete potential of “peak demand” in senior dwelling, provide development should improve by 35,000 to 40,000 models per 12 months from present building charges, in keeping with the report. However this doesn’t seem a actuality as improvement continues to stay muted throughout the sector stemming from the present degree of building prices and different elements, in keeping with the report.
Capitalization charges are “extensively stratified” throughout asset class and funding high quality, with 53% of the surveyed traders noting that cap charges have peaked and can stay flat by means of the remainder of 2025. Cap fee spreads stay elevated in comparison with the 10-year treasury bond yield, probably suggesting undervaluations or extra danger however might convey near-term upside on pricing. By property sort, cap charges in unbiased dwelling have been on common 6.2% within the first half of 2025, whereas assisted dwelling common cap charges have been 6.8% and eight.5% in reminiscence care, in keeping with the report.
Transaction quantity rose by almost 70% year-over-year within the second half of 2024 as the worth per unit rose 46% in early 2025 in comparison with the 12 months prior, in keeping with the survey.
Development begins, or lack thereof, have fallen to ranges not seen because the 2008 Nice Monetary Disaster, with roughly 10,000 new models added prior to now 12 months.
“This discount in projected provide development, coupled with the rise in shopper demand, will probably be important within the sector’s means to offset the elevated working bills brought on by labor shortages and rising insurance coverage premiums plaguing the sector,” the report states.
Because the begin of 2025, distressed asset transactions accounted for almost 2.8% of reported gross sales, falling under expectations which indicators a shift “again to core and core-plus” funding methods as 31% within the first half of this 12 months are altering tack with core acquisitions and 43% with core-plus and 13% respectively for distressed and value-add acquisitions in comparison with 2024, the investor survey reveals.
The best dangers to valuations over the following 12 months are present rates of interest (39%), labor shortages (33%) together with elevated provide and altering rules at 11%, respectively, whereas debt market liquidity (4%) and “different/pandemics” accounted for two% of danger, the report reveals. The highest three circumstances within the 1H25 have been the identical as final 12 months, it needs to be famous.
Within the first half of this 12 months, 41% of traders who responded to the survey stated they’re in search of majority assisted dwelling properties in comparison with 29% in 2024. Majority unbiased dwelling got here in second for biggest phase for funding alternative at 16% within the first half of 2025 in comparison with 14% final 12 months. Lively grownup was the third-most favorable funding sort at 15% this 12 months and 13% within the first half of 2024, the report reveals.
With $18 billion in senior dwelling loans to mature within the subsequent 24 months, lenders are working with present companions somewhat than in search of foreclosures, the report stated.
The trade’s affordability concern stays “broadly unsolved,” however “new design tendencies are rising,” the report notes. This comes as demand for center market senior dwelling is projected to extend because the variety of mid-income older adults is anticipated to double by 2029.
“Over half of this phase won’t have satisfactory funds to afford typical senior dwelling and care,” the report stated.
