As the senior housing market emerges from a three-year pandemic-induced occupancy recovery, it finds itself at a critical juncture. Strengthening demand and occupancy rates steadily approaching 90% signal a powerful opportunity for growth, driven by the natural alignment between the industry’s mission and the needs of an aging population.
While labor pressures continue and operational expenses remain elevated, the senior housing market fundamentals in 2025 will be strong, robust demand is expected to drive continued strong momentum in the absorption-to-inventory velocity (AIV) ratio over the next two years. As detailed in the spring 2024 SHARK report, this trend could set new occupancy records, with most regions projected to achieve occupancy rates in the 90% range by 2026.
Simultaneously, rent growth has proven to be a double-edged sword. While rising rents have supported operating margins amid higher expenses, affordability challenges for middle-income older adults persist. Luxury senior housing properties may have successfully justified premium rents with high-end amenities and services, but mid-tier and lower-tier operators will likely need to balance pricing and discount strategies with occupancy to remain competitive.
In recent years, the pace of new senior housing construction has slowed, driven by rising material costs, labor shortages, and economic uncertainty. This tempered supply growth has created opportunities for existing properties to capture demand as the market stabilizes. We expect this trend to continue through much of the year ahead.
Yet, the industry faces a supply shortfall exacerbated by aging stocks and prolonged construction timelines. This will likely fuel a trend toward repurposing older buildings and increasing capital expenditures to enhance efficiency, competitiveness, and appeal to future residents.
Investment and lending dynamics are also changing. Investors and lenders are seeking stable, long-term returns while assessing the risk profiles of new developments and repositioning older assets. Senior housing properties that can demonstrate strong lease-up performance, operational efficiency, and adaptability to market conditions will be better positioned to attract capital.
Finally, one of the most critical lessons from recent years is the importance of clearly articulating the value proposition of senior housing. Today’s seniors and their families expect more than a place to live, they seek a property where they can thrive physically, emotionally, and socially. Achieving this potential requires balancing affordability with quality while transitioning from the traditional one-size-fits-all model to more personalized offerings that cater to the diverse needs and preferences of the baby boomer generation – one of the largest and most diverse cohorts.
The senior housing market is entering 2025 with both challenges and opportunities. The coming years will test the industry’s continued resilience and innovation as it strives to deliver on its mission and achieve sustainable growth.
The future of senior housing is bright. Is the sector ready to transform today’s challenges into tomorrow’s opportunities?