Quoting the great Canadian singer songwriter, Gordon Lightfoot, “It’s cold on the shoulder and you know that we get a little older every day.”
It matters little if the economy is up, down or sideways, aging is inexorable. It comes to us all a bit and a piece at a time.
The demand for senior housing is surging now amid a serious supply demand imbalance. This should create a long runway of favorable conditions for investors in this sector.
The tail winds driving this are:
- Aging Boomers. The first wave of Boomers will turn 80 next year, and the 65 and older population will grow by 44 percent by 2032, which compares more than favorably from an investment standpoint with general population growth of just 5 percent (Senior Housing Faces The Silver Tsunami).
- The ratio of potential care givers per senior in each family is declining from 6:1 to a predicted 5:1 in 2024 and 3:1 in 2030 (Senior Housing Faces The Silver Tsunami).
- The population of seniors with Alzheimer’s, dementia and other cognitive impairments, is projected to grow to 14 million over the next 30 years from as little as 6 million today (Senior Housing Faces The Silver Tsunami). This is something that requires a highly specialized degree of attention and care seldom found in the home.
- This has the potential to translate into many more units of independent living, assisted living, and memory care units than are currently available. This also comes at a time of severe supply constraint.
- New supply is constrained by rising interest rates, currently at a 22 year high, and steadily escalating construction costs. Unlike during the pandemic, materials are available but thanks to Bidenflation each year they are significantly more expensive. This limits developers’ opportunity and ability to bring more supply to market in a timely manner.
- An institutional buying frenzy. As mentioned in our previous blogs “DSTs and Core CRE,” the traditional institutional model of office, retail, industrial and multifamily may be dead. In less than 4 years institutional allocation to office properties has dropped from around 20% to 2% (WSJ 3/21/23). We don’t have the same numbers for retail, but we believe they may be little different.
- This has resulted in increased institutional interest in senior living and other “alternative” asset types to plug the holes in their portfolio left by the extirpation of office and retail.
- Due to the severe correction office is currently experiencing, there is lots of institutional cash sitting on the sidelines. When the dust from this finally settles and investors begin deploying all this dry powder, it could have a very salutary effect on the pricing of senior living assets.
Retail investors don’t drive these trends, institutions do. However, they may be able to benefit from them. If you are in front of this wave when it arrives, it could carry you a long way.