How COVID-19 Has Affected Assisted Living Cap Rates

We know that COVID-19 has caused widespread disruption throughout the senior housing industry, but the long-term market outlook is better than many predicted. Last month we looked at how the pandemic has impacted senior housing development, and the news was actually pretty uplifting! According to the Emerging Trends in Real Estate report, senior housing is considered a fair investment for 2021. Assisted living and long-term care facilities were the third-best development type in 2019, but 2020 was obviously a different story. Unfortunately, the pandemic has impacted even the hottest markets, leading to valuation challenges and a lot of unpredictabilities.

However, senior housing developers remain hopeful. The United States Commercial Real Estate Services indicates cap rates for senior housing have remained steady and there hasn’t been a lot of fluctuation in numbers. This is certainly positive news, but it’s important to remember that cap rates aren’t the only factor affecting value. Changes in operating costs often impact how much a property is worth, which is something assisted living facilities have grappled with since the start o the pandemic.

Occupancy Rates Continue to Decline, Senior Housing Cap Rates Remain Stable 

Occupancy rates continue to decline as we enter into another wave of the virus. While long-term care and assisted living operators indicate some declines in occupancy, nursing homes have been the hardest hit over the duration of the pandemic. However, these periods of decline may present opportunities for investors. Historically, large price declines often lead to new opportunities and a refreshed market, which is why senior housing investors remain hopeful.

Long-term, senior housing experts anticipate a potential expansion of cap rates, as demand remains strong. As we discussed last month, the future is promising for senior housing development, a prediction that is supported by stabilized assets and unchanged cap rates.

To find out more about investment opportunities in senior housing, contact Sherman & Roylance Real Estate Investment Services.