Senior Living Continues to Present Opportunity

Nothing crazy exciting hitting the headlines this week. Here’s your weekly scoop of Real Estate market updates!

This newsletter is 678 words, a 2.71-minute read

Senior Living ‘Knocking On’ Record-High Occupancy Levels in Coming Years, Propelling Investor Interest

Senior housing occupancy is projected to reach 91% by 2026 across 99 primary and secondary markets, with rapid recovery in assisted living leading the way. This marks a significant absorption rate, with 23 units absorbed for every 10 new ones added to the market.

Investment firms like AEW Capital Management, which has $3.3 billion in senior housing assets, are prioritizing the sector, seeing it as a top investment opportunity for 2025. The firm’s LPs are showing renewed interest after years of challenges.

Demand is fueled by the aging population, rising wealth among older adults, and slow new construction. This supply-demand gap is leading to growing operating margins and strong investment appeal.

Builders shifting to Condos and Townhomes

Home construction activity fell in 2023 by 7.1%, but remains above pre-pandemic levels. Builders are focusing on higher-density housing to address the shortage of 4.5 million homes. Condos and townhomes are increasingly replacing detached single-family homes.

Pittsburgh, Indianapolis, Dallas, New York, and Las Vegas saw the most single-family home permits issued compared to pre-pandemic levels. These metros continue to lead in housing construction despite affordability challenges.

The median lot size for new homes dropped by 700 square feet in 2023 as builders aimed to overcome land cost hurdles. Single-family attached home completions grew by 9.6%. link

Downtown Office-to-Residential Conversions

With many office buildings across the country still struggling with vacancy numbers and profitability post covid, Urban Land Magazine predicts that Obsolete buildings will constitute up to 50 percent of all new housing in cities.

Buildings that are considered the “worst” office buildings—typically Class B—often are the best candidates for conversion to residential uses. The smaller floor plates and high floor-to-floor ceilings lend themselves to residential conversion. Office building HVAC ducts and electrical wiring reduce 11-foot floor-to-floor stories to about 8 feet in height. Such ducts and cabling can be stripped back for residential uses, leaving 10-foot ceilings that feel spacious and luxurious to residents.

Beyond supporting conversions themselves, cities must also put a clear plan in place to address the changes that will occur as conversions happen. Conversions can help solve the problem of vacant office space and add to the housing stock, but they bring a new set of problems as people move into a neighborhood that might not have the resources to support increased residential density, such as schools and grocery stores.

A bit backward: Midwest sees rent rise as Southern markets see decline

Eight of the 10 Midwest markets, including Cincinnati, in Realtor.com's September report saw year-over-year rent increases. Only Chicago and Detroit experienced declines.

“The balance between housing supply and demand is a key factor shaping regional rent patterns. In markets across the South, increased multifamily inventory is easing competition among renters and driving down prices. On the other hand, in the Midwest, where demand has outpaced supply, we continue to see rising rents,” said Danielle Hale, Chief Economist at Realtor.com. “Nationally, the relative stability in rent prices should translate into slower shelter inflation in the months ahead, easing one of the biggest recent drivers of price increases.”

Nationally, rents for zero- to two-bedroom units have been declining for 14 consecutive months, with a median drop of 0.5% or $8, settling at $1,743. This brings median rents just 1% below their August 2022 peak.

Home Price to Income Ratio US

Much of this chart is not surprising in the slightest. Coastal cities have skyrocketed in cost of living while the Midwest is always known for its affordability. Just crazy how high some of the multiples are.

That’s all for this week! Thank you for reading and as usual - share with friends!

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The information provided in this newsletter is for informational and educational purposes only and does not constitute financial, investment, or real estate advice. The content is based on the opinions and research of the authors and may not reflect the most current market conditions or developments. The analysis of properties is done without consideration of each platform’s fees. Always conduct your own research and consult with a qualified financial advisor or real estate professional before making any investment decisions. The authors and publishers of this newsletter disclaim any responsibility for decisions made based on the information contained herein.