Senior housing posted a positive total return of 2.07% in the fourth quarter of 2024, bringing full year 2024 total returns to 3.64%, the third highest NCREIF property type return for the year after hotel (+6.59%) and retail (+5.33%). Senior housing outperformed the broader Expanded NCREIF Property Index (NPI) in both the quarter and year, which posted a total return of 0.94% and 0.59%, respectively. Senior housing capital appreciation in the fourth quarter turned positive for the first time since mid-2022, increasing 0.77%. The capital appreciation return is the change in value net of any capital expenditures incurred during the quarter. Senior housing income in the fourth quarter was also positive, yielding 1.31%. For the broader NPI in the fourth quarter, property valuations continued to move lower (capital appreciation of -0.24%), partially offsetting the positive income return of 1.17%.  

By senior housing property subtype, both independent living (+2.73%) and assisted living (+1.51%) posted positive total returns in the fourth quarter. For the full year 2024, independent living returned 5.60% while assisted living returned 1.95%. In recent years, independent living has also outperformed assisted living over the three- and five-year periods. This outperformance may be driven by higher margins typically generated in lower acuity settings such as independent living, which require less staffing and labor expenses than higher acuity settings such as assisted living. Additionally, independent living has had higher occupancy rates during this period. Over the longer run, since NCREIF began tracking returns data for these subtypes roughly a decade ago, both assisted living and independent living posted similar returns averaging more than 5% annually. 

Annualized Total Returns by NCREIF Property Subtype 
As of 12/31/2024; Unlevered 

Compared to other NCREIF property types over the 10-, 15-, and 20-year periods, senior housing was the strongest property type except for industrial and self-storage, outperforming the NPI on an annualized basis by 39, 26, and 302 basis points, respectively. Since the 2003 beginning of NCREIF’s senior housing historical time series, income yield drove roughly 60% of senior housing total returns, while price appreciation contributed roughly 40%. These performance measurements reflect the returns of 225 senior housing properties valued at $11.72 billion in the fourth quarter. Overall, the number of senior housing properties tracked within the NPI has grown significantly from the 56 properties initially tracked in 2003.

Annualized Total Returns by NCREIF Property Type
As of 12/31/2024; Unlevered

Senior housing market fundamentals remained positive in 2024, with the occupancy rate for the 31 NIC MAP Primary Markets increasing 0.7 percentage points to 87.2% in the fourth quarter, gaining 2.2 percentage points from a year earlier. By property type in the fourth quarter, there was a 0.7 percentage point increase in the independent living occupancy rate and a 0.6 percentage point increase in the assisted living occupancy rate, and both gained more than 2.0 percentage points in occupancy for the full year 2024.

Occupancy increases were driven by another year of robust demand as 2024 net absorption was roughly in line with 2022 and 2023 levels. Inventory growth in 2024 was slightly higher than 2023 but overall remained low and near levels last seen roughly a decade ago. Looking ahead, given the current supply and demand trends, NIC forecasts that occupancy levels will surpass 90% by the end of 2026, which has only happened a handful of other times since NIC MAP began tracking the data.

After nearly five years of uncertainty and headwinds in the seniors housing space, capital markets going into 2025 seem to come with the headline “Cautiously Optimistic”.

Over the past 18-24 months, in particular, unprecedented interest rate and cap rate pressure sidelined sponsors and capital providers, leading many in the industry to adopt a “wait-and-see” approach. Additionally, regulatory pressures on federally regulated financial institutions caused permanent financing refinance options to essentially vanish and banks to reduce new loan originations and adopt a more rigid approach to existing loan modifications and maturities, likely requiring additional cash collateral, loan curtailments, recourse, and increased loan pricing. All these factors created additional stress on senior housing assets, regardless of performance and cash-flow at the asset level.

However, as 2025 begins, the tides seem to be turning (albeit, more slowly than desired). The fourth quarter of 2024 saw declining interest rates for the first time in years, and asset values have been rebounding, providing some much-needed marginal relief – and hope – across the industry.

2025 will be interesting on many levels, with particular attention paid to inflation and interest rates. From an interest rate perspective, with the presidential election behind us, and so much policy uncertainty as we enter 2025, it is possible – and even likely – that the Fed will pause rate cuts at the January Federal Open Market Committee (FOMC) meeting, with the expectation there will be fewer cuts than previously thought in 2025. Despite this, interest rate stability is a welcomed change from the rising rate environment we have all been living in. 

With stable interest rates and asset values, coupled with the increasingly strong fundamentals of the industry, capital markets seem to be slowly and selectively reentering the space. From banks who have been able to recognize payoffs and are now able to deploy new loan dollars, to new equity groups and debt funds entering the space (or even reentering after sitting out the past few years), liquidity for new and existing inventory appears to be rising.

With that, an additional consideration is how new and existing inventory will continue to be capitalized throughout 2025. For existing inventory, traditional bank debt is increasingly available for assets with positive leasing momentum that need some additional time, while a rising number of debt funds are showing interest and available capital for assets with a different story wherein recapitalization or repositioning is needed. On the other side of the coin, new inventory is a rarity as annual inventory growth has been declining since 2019, and currently sits at approximately 1% as of 3Q24 NIC Map Data. However, for sponsors with patient and recurrent equity, along with efficiencies of development, banks are interested and willing to extend new loan dollars after experiencing payoffs throughout the latter half of 2024.

Regardless of what is to come in 2025, the ability to rely on patient and flexible partnerships between sponsors and capital providers continues to be a vital resource.

Since early 2020, the U.S. economy and labor markets have been on a bit of a roller coaster ride. We endured the “Great Resignation” with escalating wages and tight labor markets. At the same time, inflation surged in 2021 and didn’t start to decline until late 2022. NIC conducted analysis specifically comparing cumulative rent growth and cumulative wage growth within assisted living. This analysis reflects growth metrics from the first quarter of 2020 through the third quarter of 2024.

As displayed in the following graph, assisted living asking rent growth has generally lagged the pace of assisted living wage growth in recent years. As a reminder, the assisted living production, nonsupervisory staff make up roughly 80% of the wages within assisted living.

Interpretations and Implications

Does this data suggest that operators should respond and implement widespread, aggressive rent hikes? No, of course not. Rents have always been driven by a combination of factors. When operators face significant increases in operating costs, what is to be passed on to existing and future residents versus what can be absorbed by the organization needs to be determined. The sector did implement larger increases during the high-inflationary years and generally, the consumer accepted those increases knowing the backdrop of the overall economy.

What is to be seen is how rent growth will pace in the year or two ahead. In 2025, seniors will have the lowest social security cost of living adjustment in four years. How will this play into rent growth? Is there a ceiling with how much a senior is willing to pay? How does the overall affordability of the housing market play into comparative costs of senior housing?

If nothing else, this information provides insights into the dynamic between these two revenue and expense forces. NIC will continue to track and report rent statistics against measures such as wage growth, consumer price index (CPI), social security increases, and other helpful benchmarks. 

The NIC Analytics team presented findings during a webinar with NIC MAP Vision clients on January 23rd to review key senior housing data trends during the fourth quarter and full year 2024. Additionally, Chris Bird, CEO of LCS, joined Lisa McCracken, NIC’s Head of Research, for a conversation on outlook, growth, and strategy for owners and operators in the senior housing industry in the year ahead.

Key takeaways included: 

Takeaway #1: Occupancy Rate Continued Climbing 

• The occupancy rate for the 31 NIC MAP Primary Markets rose 0.7 percentage points to 87.2% in the fourth quarter, gaining 2.2 percentage points for the full year 2024.
• Occupancy increases were driven by another year of robust demand as 2024 net absorption was roughly in line with 2022 and 2023 levels.
• Inventory growth in 2024 was slightly higher than 2023 but overall remained low and near levels last seen in 2013.

Takeaway #2: Occupied Units Reached New Record High

• The total number of occupied senior housing units hit another record high in 2024, rising to more than 618,000 units for the 31 Primary Markets in the fourth quarter.
• The Secondary Markets had a similar trend, reaching a record high of more than 335,000 units.
• These record highs speak to the robust consumer demand for senior housing units.

Takeaway #3: Senior Housing Units Under Construction Least Since 2014  

• In construction trends, for both Majority Independent Living and Majority Assisted Living properties, the number of units under construction in 2024 continued to decline, falling to levels last seen in 2014.
• This decline may reflect ongoing headwinds to development such as access to capital, cost of capital, and construction costs.

Takeaway #4: Construction Starts Declined for Third Consecutive Year 

• Senior housing construction starts also remained depressed in 2024, with the fewest units breaking ground in the 31 Primary Markets since 2009 during the depths of the Global Financial Crisis.

Takeaway #5: Increasing Number of Markets with No Projects Under Construction

• By metro area each quarter, this heat map shows which markets had the most construction activity shaded in red, and the least construction activity shaded in blue.
• In 2024, an increasing number of the 31 Primary Markets reported no projects underway, rising from one to four during the year.

Investors considering an acquisition always ask about the cap rate, the estimated rate of return on the property. But that calculation has never varied so much, according to Colleen Blumenthal, chief operating officer at HealthTrust LLC, a Sarasota-based firm that provides property appraisals and valuations.

“There’s a wide spectrum of risk right now,” said Blumenthal, who will lead a panel of industry pros in a discussion at the 2025 NIC Spring Conference on the complicated dynamics impacting today’s cap rates. “We’ve never had a market before where the cap rate is determined by so many different factors.”

While cap rates traditionally have been fairly predictable, brokers and investors say cap rates, especially those on less desirable projects, don’t make sense anymore. Cap rates today depend on who’s buying the property, the lender, the property’s age and location, and performance assumptions. “Every deal is different,” said Blumenthal. “There is no one answer.”

Blumenthal recently previewed what attendees can expect to take away from the wide-ranging, in-depth session in San Diego. Here are some of the factors impacting cap rates that will be explored:

Obsolete buildings. Communities built 25 years ago typically have several challenges. One example is too many studio apartments. The assumption has been that those properties can fill the needs of middle-income seniors, the so-called “Forgotten Middle,” first identified by NIC in 2019. “I’m not sure that’s true,” said Blumenthal. “Studio apartments are not popular.” She’s noticed in some markets that people still won’t lease the units even with very low rents.

Submarket trouble. Certain submarkets have specific problems. For example, New York City has had seven buildings open over the last few years. For a variety of reasons, mostly related to the pandemic, the buildings that opened more recently have had a better initial lease-up than the older buildings. But none of the buildings are doing as well as expected. “That will be cured with time,” said Blumenthal. “But no one is coming out as well off as they had hoped.”

Interest rates. The capital markets have been rocky since the Federal Reserve started increasing rates in early 2022. Deals began to fall apart later that year because not all the interest rate hikes had been factored into the pricing. Blumenthal doesn’t expect interest rates to go much lower than they are now. But cap rates will decline on stabilized, new properties with good operators. “The supply of desirable product is smaller than the demand,” she said. 

Failure to thrive. Newer buildings that haven’t filled are subject to high cap rates. One newer building traded at a cap rate close to 15%. The lender pushed the sale because the buyer had the ability to close the deal. “Buyers with cash are doing fine,” said Blumenthal.

Cap rate creep. For 30 years, skilled nursing cap rates were 12-14%. But cap rates are creeping up for skilled nursing properties. Mom and pop operators, exhausted from the pandemic, are cashing out. Operators need command of healthcare data to show they can provide good outcomes. Sophisticated operators with cash are buying skilled properties.

Blumenthal noted that the panelists in the upcoming 2025 NIC Spring Conference session represent a broad perspective of private, public and workout firms as well as a broker. “The session will be very spontaneous and worth your time,” said Blumenthal. “It won’t be your grandfather’s valuation panel discussion.”

Learn more and register.