Absorption continues to outpace supply as inventory growth drops to historic lows
Chicago – September 25, 2024 – U.S. senior living property market fundamentals continued to strengthen through the first half of 2024, according to the latest report from Cushman & Wakefield. Stabilized occupancy trended upward for the 12th consecutive quarter, surpassing 87% as rent growth remained intact, averaging 4.5% through the first half of the year.
The number of occupied units set a new all-time-high for the seventh consecutive quarter, as absorption remains strong, outpacing supply growth by 2.75 to 1, while inventory growth reaches historic lows with construction dropping to 3.8% of existing supply.
“The outsized occupancy and rent growth have helped counterbalance the recent turbulence in the broader capital markets,” said Jason Skalko, Managing Director, Senior Living & Care Investment Sales.
The Northeast region remains the strongest performer with stabilized occupancy near 90% and annual rent growth falling just below 5%, with Boston, Portland, Baltimore, and Philadelphia identified as top performers. Conversely, markets such as San Jose, Washington D.C., Denver, and Detroit all have significant construction levels relative to supply and will likely experience some downward pressure as this supply comes online, albeit short lived.
“Secular tailwinds are stronger than ever. To meet peak demand levels, supply growth must increase by 35,000 to 45,000 units per year, beginning today. For context, the highest number of units delivered in a single year was 34,000, with only 14,000 units delivered over the trailing 12-month period,” said Zach Bowyer, Executive Managing Director, Head of Living Sectors.
“Affordability remains broadly unsolved as well. With the number of middle-income seniors projected to double by 2029, over half of this segment will not have adequate finances to afford conventional senior living and care.”
“We are closely monitoring senior living loan maturities, now at $19 billion, expected within the coming 24 months,” added Bowyer.
While opportunities for investors certainty exist, these maturities have yet to materialize in a meaningful way. Lenders’ willingness to work with well-positioned borrowers and equity investors poised to benefit from properties with distressed capital stacks has helped keep a floor on valuations.
Cushman & Wakefield’s valuation indices report on over $35 billion in aggregate senior living & care valuations. These indices show peak-to-trough valuations hovering close to a 20% decline for the sector. However, the rate of change has slowed over the trailing three months, suggesting valuations are at or near the bottom. With the recent improvement in interest rates, valuations are likely to improve through the second half of the year, primarily for newer properties in desired market locations.
More than 90 of the industry’s most influential leaders responded to Cushman & Wakefield’s Investor Survey. At 56% of survey respondents expecting capitalization rates to remain level through the second half of the year, a stark contrast to the 68% expecting capitalization rates to increase from the H2 2023 survey, investor sentiment remains cautiously optimistic as market certainty slowly returns.
The crosscurrents between strong property market fundamentals and choppy capital markets are slowly subsiding as debt becomes more available and interest rates begin to move downward. This shift will help bring certainty back to the market and more dry powder off the sidelines.
The full report can be downloaded here.
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In 2023, the firm reported revenue of $9.5 billion across its core services of property, facilities and project management, leasing, capital markets, and valuation and other services. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com.
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