Seniors housing continues to be in high demand, especially the independent and assisted living subsets, due to the rapidly aging population. Unfortunately, the influx of supply has caused overdevelopment and flattening occupancy rates in most markets. In the fourth quarter of 2017, the national occupancy rate—based on aggregated data from 31 markets—averaged 88.8 percent, down 70 basis points year-over-year, according to the National Investment Center for Seniors Housing & Care (NIC).
The National Real Estate Investor spoke with several seniors housing and financial experts to learn some of their picks for the top regions around the country for seniors housing development. Many industry insiders may be quick to say that seniors housing is overdeveloped in most markets, but that is an issue in many asset classes, particularly in places with lower barriers to entry—for example, Dallas, Houston, Atlanta, San Antonio and Denver, says Aron Will, vice chairman of debt and structured finance, seniors housing, at CBRE. There are opportunities to be found if you pay attention to what each specific market wants.
- California: When it comes to Southern California—“there are no markets better than that,” Will says. However, it’s a region with high barriers to entry and a tighter labor market—which could translate into higher rents that can be justified to higher-end tenants. David Rothschild, executive managing director with the senior living group at Cushman & Wakefield, singles out San Diego as a strong market with its ideal location on the coast and near other top communities. While it can take years before construction can start on a development there, it is that difficulty that can make it more attractive. Further north, San Francisco is a city that is always in strong demand—if there is space available, and NIC ranks San Jose as having the highest occupancy in the country.
Arizona: Also well-known as a top locale for seniors, Arizona ranked third on MoneyRates.com’s ranking of the top states for retirees. One of the state’s draws is its abundant sunshine. It’s also a market that has already seen a lot of supply, Rothschild says, but its absorption rate has also been strong.
- Florida: Some of the Florida markets have seen a tremendous amount of supply, in particular Tampa and Orlando, Will says. Still, the Sunshine State is regarded as one of the top retirement destinations in the country. Florida landed fourth on MoneyRates.com’s ranking of the top five states, largely because it has the highest over-65 proportion in the U.S., and because life expectancy at age 65 there is the third-highest in the union. One concern to watch for is that a lot of new development in prominent retirement markets is more expensive, and a lot of seniors saw a drop in their wealth after the recession, says Jeff Binder, managing director with Senior Living Investment Brokerage Inc.
- New England: States in the Northeast have seen a lot of seniors housing development on or near university campuses, which appeals to alumni seeking the amenities college towns can offer, says Binder. Maine specifically was recently ranked as one of the top five states for retirement by MoneyRates.com, given its low crime statistics and the fact that it has the second-highest proportion of population over the age of 65 in the country due to the quality of life people seem to find there.
- Washington: Seattle, in particular, is a city undergoing a lot of construction, thanks to the tech giants who house their offices there, and it may be a good market for seniors housing, says Rothschild. “People are looking at urban markets a lot more, and there seems to be opportunity there,” he notes.