The senior housing and care sector is poised for a promising year in 2025, driven by strong demographic tailwinds, solid market conditions and improving operational performance. While the general outlook is positive, there are uncertainties as the industry navigates a dynamic economic and political landscape.
Guarded Optimism with Capital Flow
Access to capital in the year ahead is anticipated to be rosier than the past 12 months, but how rosy remains to be seen. Interest rates have decreased from their peak, but remain above the lows from prior decades, and it does not appear we will return to those levels anytime soon. The Federal Reserve’s more conservative stance coming out of the December 2024 meeting suggests fewer rate reductions in 2025 than what was projected a mere six weeks ago. The sector faces approximately $10 billion in loan maturities in 2025, and borrowers will need to align their forecasts accordingly. Bank lending improved in 2024, and we anticipate that the debt markets will continue to migrate back to the playing field in 2025. Transaction activity is anticipated to be robust in 2025, building on the increased momentum seen in 2024.
Measured Construction and Development Activity
Despite strong demand driven by an aging population, new development activity remains constrained due to both limited access to development capital and elevated construction costs. While it is anticipated that more developers will explore projects in 2025, a flood of new construction is unlikely. There has been much talk about ‘thriving in ‘25,’ leading to ‘sticks in ’26.’ Projections from Fed officials now show only a half percentage point cut in the federal funds rate by year-end. This is likely to temper the flow of senior housing construction starts this year. The sector is in a better position to advance growth opportunities compared to one year ago, but we might be looking at more twigs than sticks in ’26.
Solid Financial and Operational Performance
As a whole, senior housing financial performance is expected to continue to improve given projected occupancy increases, revenue growth, and the ability to implement rent growth above historic long-term averages. Labor-related expenses have been moderating, and cost of goods and utilities are more predictable. Rising insurance costs will remain a pressure point in 2025.
Political Impact – A Wild Card
The incoming administration has been vocal about their intent to tighten immigration policy and impose greater tariffs. It is unclear how actions at the federal level may shape the 2025 workforce landscape or decisions from the Federal Reserve, but it is clearly something to pay attention to. Proposed tariffs, coupled with potential workforce pressures could set up even greater headwinds for construction activity.
Positive Outlook
Overall, the outlook for the senior housing and care sector in 2025 is promising. Strong demographic growth, robust demand, and limited new supply are expected to boost operational and financial performance. These positive factors should help mitigate potential downsides, such as a slower pace of Federal Reserve easing and any adverse impacts from changing administration policies. While challenges persist for some communities that have struggled in recent years, the sector’s fundamentals remain strong, positioning it for continued growth and attracting increased investor interest in 2025.