The Simple, Three-Part Explanation for Growing Enthusiasm Over Senior Housing

[Cory Wake]

There has been a notable shift in investor enthusiasm for senior housing over the past 18 months. In 2024, NCREIF categorized senior housing as its own category, carving it out from multi-family. Green Street published a report predicting senior housing will have the highest 5-year NOI growth of all real estate classes. WSJ and CNBC published featured articles about growing investor enthusiasm for the sector. A much publicized interview with Ventas (NYSE: VTR) Deb Cafaro spread through the CRE industry in September.

Investors like simplicity, and the investment thesis behind senior housing is simple. There are three pillars underlying the growing enthusiasm:

1.) Unprecedented demographic change: baby boomers just began turning 80, and the number of aged 80+ people in the U.S. will approximately double over the next ten years. That rate of change is unlike anything the country has previously experienced, and it’s expected to translate to a wave of demand for senior housing communities. Notably, the number of occupied senior housing units in the U.S. is already at a record high, and this demographic shift is only just beginning.

2.) Record low supply growth: COVID, rate hikes, and raw materials inflation have collectively driven senior housing construction activity to record lows. Unit starts as a % of existing inventory are at their lowest recorded levels.

3.) Attractive valuations: valuations bottomed in 2023. They’ve since recovered but remain substantially below pre-COVID peaks.

Taken together, valuations are attractive at a time when demand growth is accelerating and supply growth is decelerating. These conditions are attracting the attention of investors, analysts, and journalists, and giving senior housing its own identity as an investment category in the public consciousness.