As we look ahead in 2025, the senior living industry is poised for significant transformation, with value-based care (VBC) at the forefront of this evolution. The Centers for Medicare & Medicaid Services (CMS) has set an ambitious goal to have all Medicare beneficiaries in some form of value-based care arrangement by 2030, and the industry is making strides toward this objective.  

The transition to value-based care has been gaining momentum, particularly within the Medicare population. In 2024, KFF reported that 54% of eligible Medicare beneficiaries were enrolled in a Medicare Advantage (MA) plan as opposed to the traditional fee-for-service plan. Enrollment in MA plans has been rising steadily each year and CMS projects increased enrollment numbers again in 2025. As an alternative, several operators have entered into risk-bearing arrangements where they either own their own plan or participate in a joint venture with an existing payer. We anticipate continued growth in these provider-led plans in 2025 as operators aim to have greater control over reimbursement and quality decisions for those they care for.  

Growing Revenue Streams 

The recently announced CMS GUIDE Model (Guiding an Improved Dementia Experience)  presents a promising opportunity for senior living operators to participate in value-based care while generating additional revenue. GUIDE is not a shared savings or capitated model but is a condition-specific care model designed to be compatible with other models and programs like ACOs that aim to provide opportunities to improve care and reduce overall healthcare spend. Specifically, this model aims to help older adults with dementia stay healthy at home longer and introduces a new payment structure for participating providers. 

Key aspects of the GUIDE model include: 

• Reimbursement for care assessments 

• Compensation for care planning 

• Payments for educating caregivers 

Many senior living operators are already performing these tasks, making the GUIDE model a natural fit for their existing operations. As the CMS Innovation Center continues to explore alternative payment models, it is anticipated that there may be additional opportunities for senior living organizations to be reimbursed for value provided.  

Enhancing Data Sophistication 

As an industry, we need to become more sophisticated in our data tracking, reporting, and implementation. This is an imperative for the industry and something that is absolutely critical in making progress towards not only value-based care arrangements, but in improving outcomes and communicating the evidence of value provided. The adoption of platforms that enable operators to accurately track key metrics on residents, to access information in real-time, and to support proactive interventions are paramount. We are optimistic that the sector will continue to improve in its data collection and reporting efforts in 2025 and will move toward greater standardization of key performance metrics.     

As we enter the new year, the senior living industry is at a critical juncture in its journey toward value-based care. While progress has been made, there is still considerable work to do. The transition to value-based care represents not just a change in payment models, but a fundamental shift in how we approach senior care. By focusing on outcomes rather than services rendered, the industry has the potential to significantly improve the quality of life for seniors while also enhancing operational efficiency and financial sustainability. With innovative models like GUIDE and increasing awareness of value-based care benefits, we can expect more senior living operators to explore and adopt value-based care arrangements in the coming year. 

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? 

As we look ahead in 2025, the skilled nursing sector is poised for both opportunities and challenges. The year will likely be driven by many factors including evolving supply and demand fundamentals, workforce pressures, policy changes, and capital market trends. Below are the key trends to follow in 2025. 

Occupancy on the Rise 

Expect continued occupancy increases as the number of occupied units rise and operational bed inventory declines. The occupancy rate for nursing care rose 0.2 percentage points to 84.5% in the third quarter of 2024 for the 31 NIC MAP Primary Markets. This marked the fourteenth consecutive quarter of occupancy gains, driven by net absorption of nursing care beds outpacing the amount of new inventory. Inventory has been declining due to factors including closed properties and the migration toward more private than semi-private rooms. In addition, the total number of occupied nursing care beds continues to increase, rising to more than 467,000 beds for the 31 Primary Markets in the third quarter. 

Stable, but Uneven Reimbursement Rates 

Medicaid funding is expected to remain stable, with some states projecting rate increases of 3% to 4%. Supplemental payments tied to quality of care will continue to be a significant factor in reimbursement as states expand these programs throughout the country. The Centers for Medicare & Medicaid Services (CMS) finalized a 4.2% increase in Medicare payments to skilled nursing facilities (SNFs) for fiscal year 2025. This translates to approximately $1.4 billion in additional Medicare Part A payments. While this increase is welcome news for operators, it is important to note that it may be partially offset by other factors such as elevated operating costs. 

Active Acquisitions and Consolidation Cycle  

The industry is likely to see continued consolidation, with disciplined acquisition strategies presenting opportunities for growth in 2025. This trend is driven by the need for operational efficiencies and the potential for organic growth in newly acquired properties. Well-performing assets will command premiums, while distressed assets may see increased interest for turnaround opportunities or even sales for alternate uses. Much of the consolidation is expected to be driven by smaller and/or underperforming operators that need to exit the business. 

Expansion of Technology and Innovation 

The industry is likely to see continued adoption of technology solutions to address staffing challenges, improve care quality, and enhance operational efficiency. This may include increased use of telehealth, remote monitoring, and AI-assisted care planning. Many believe AI has the potential to reduce routine administrative burdens, guide clinicians to better outcomes, and improve the quality of care. 

More Favorable Regulatory Environment Possible 

The recent presidential election has led to expectations of a more favorable regulatory environment. The federal minimum staffing mandate was finalized in April of 2024. An analysis by KFF estimated that only 19% of nursing facilities would meet the minimum hours per resident day standards under full implementation of the final rule. Many in the industry are confident that the incoming administration, along with the Republican majority in the House and Senate, will likely reverse the mandate. However, workforce challenges including the availability of labor, especially direct care staff, will continue in 2025.   

Skilled nursing operators and investors must navigate a complex landscape in 2025 shaped by ongoing reimbursement changes, workforce shortages, and evolving care models. The winners will be those who prioritize operational efficiency, embrace technology, and strategically manage labor and regulatory challenges. The demographics provide long-term tailwinds, but success will hinge on adaptability and innovation in a constrained budget environment. 

NIC’s 2025 outlook for active adult rental communities is positive, with robust demand expected to keep average occupancy rates in the mid-90% range. Like 2024, development is likely to remain somewhat subdued as access to capital and to land remain headwinds. As a result, the 0.5% average penetration rate for active adult is unlikely to increase significantly in 2025.  

Operationally, NIC expects active adult rental communities to continue to evolve to meet consumers’ changing lifestyle preferences, and organizations that can effectively differentiate their products and address the evolving needs of the 55+ demographic are well-positioned to succeed in this burgeoning market. Opportunities for customization, providing a la carte services, and increasing adoption of technology appear to be on the horizon for 2025. 

See NIC’s recently updated white paper for detailed insights on the active adult property type.

For a comprehensive understanding of the active adult property type, explore NIC’s Active Adult Communities course.

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.