NCREIF Performance Report Q3 2023
The senior housing sector posted a total return of -1.15% in the third quarter of 2023, down from a positive total return of 0.48% in the prior quarter. Short-term total returns for senior housing slightly outperformed the broader NPI, which posted a total return of -1.37% in the third quarter. Positive income returns for senior housing were outweighed by negative appreciation, driving negative total returns for the quarter. The broader NPI in the third quarter posted a similar performance, with negative appreciation more than offsetting positive income returns.
The senior housing income return in the third quarter was 0.99%, in line with the apartment sector (0.99%) and stronger than the industrial sector (0.88%), but below the overall NPI (1.07%). The senior housing appreciation (capital/valuation) return was negative for the fifth consecutive quarter at -2.13%, the lowest appreciation return since the second quarter of 2020, but slightly better than the apartment sector’s appreciation return of -2.40%. Overall, current economic and capital market conditions drove negative appreciation returns in all sectors. Further, many investors have reduced their appreciation expectations for senior housing as the sector has not yet recovered to its pre-pandemic occupancy rate. The appreciation return is the change in value net of any capital expenditure incurred during the quarter.
On a longer-term basis, the 8.70% annualized ten-year return for senior housing was the strongest of the main property types, except for industrial (14.80%), and outperformed the NPI ten-year annualized total return of 7.40%. Income returns for senior housing (5.03%) surpassed the NPI (4.58%), as did the appreciation return (3.56% vs 2.73%).
The performance measurements cited above for senior housing reflect the returns of 214 senior housing properties valued at $11.39 billion in the third quarter. This was the highest property count in the NCREIF time series for senior housing, while market value was down slightly from a high of $11.47 billion in the prior quarter due to negative appreciation returns in the third quarter. It is notable that the number of properties tracked by this index has grown significantly since the beginning of the pandemic, up from 134 properties in the first quarter of 2020 that were valued at $6.3 billion. The additional properties may be influencing the overall performance returns of the index.
Third quarter 2023 market fundamentals data for senior housing showed a continued recovery in senior housing occupancy rates in the 31 Primary Markets, according to NIC MAP® data powered by NIC MAP Vision, as demand for senior housing units outpaced new supply during the third quarter. As a result, the occupancy rate for senior housing stood at 84.4%, up 0.8 percentage points from the prior quarter and 6.6 percentage points from its low point, but still 2.7 percentage points below its pre-pandemic level of 87.1% in the first quarter of 2020. Overall, the relatively steady improvement in market fundamentals against a backdrop of significant volatility in other parts of the economy illustrates the needs-driven demand among older adults for housing and care that the senior housing industry continues to meet.
Source: Third Quarter 2023 NCREIF Performance Report, NIC Analytics