Soaring Demand Should Make Senior Housing Catnip For Investors

March 28, 2016, Tim Mullaney, Senior Housing News - Senior housing real estate is one of five major investment opportunities created by aging populations, with demand for new senior housing units in the United States set to surge through 2030, a major global investment management firm has declared.  In fact, the U.S. senior housing industry is poised for “unprecedented” growth, according to a recently released report from PGIM, the new name for the global investment management businesses of Prudential Financial Inc. (NYSE: PRU).

The demand for new senior housing in the United States is projected to increase by about 850,000 units between 2010 and 2030, according to Senior Housing Analytics figures cited by PGIM.  Attractive investment opportunities exist for independent living, assisted living, and memory care communities, states PGIM’s report “A Silver Lining: The Investment Implications of an Aging World.”

Direct real estate equity, direct real estate debt, and real estate investment trusts (REITs) are the primary ways to access this asset class, the report notes. 

In the United States, the asset class could attract institutional investor interest due to its stability, the PGIM authors emphasize.  Occupancy in senior housing has consistently ranged between 85% and 91% over the past five years even as supply has increased. And because people tend to move into independent or assisted living due to a change in their physical condition or the need to adapt their lifestyle, this type of real estate is less sensitive to economic downturns.

The United Kingdom and Japan are among the foreign markets where senior housing investments are most attractive.  In Japan, the tradition of family caregivers is being put under strain by the country’s exploding senior population, positioning senior housing as an alternative.  In the U.K., the stock of senior housing is aged and the penetration rate for private-pay senior housing is only around 1% (compared with 10% in the United States).  Therefore, new development done in partnership with established operators is a potential play in this market, the report states.

Taking the time horizon out even further only makes the situation starker, as nursing home spending is projected to skyrocket:

“Our analysis shows that by 2070, real annual spending on nursing homes will be $325 billion greater than it is today, due solely to the demographic tailwind created by a larger older population,” the report authors write.

In addition to senior housing, these are PGIM’s other four top investment opportunities linked to aging populations:

– Multifamily condominium real estate

– Urban life sciences real estate

– Pharmaceutical and biotech companies

– Technology-enabled medical services and devices

As baby boomers age and downsize, they are eyeing condo communities in walkable, urban areas that are mixed-use, enabling them to live, work, and have recreation all in proximity.  The urban life sciences opportunity can be referred to as “eds and meds” plays.  This is because the real estate required by biotech companies and other organizations involved in research and product development related to age-related diseases often is located near universities or other educational institutions.

In the near-term, pharmaceutical and biotech companies make sense to invest in, particularly those that are targeting age-related diseases such as Alzheimer’s and Parkinson’s.  Longer-term plays would include investing in startups intended to help aging people remain independent and healthy, such as in-home sensors, smart pill boxes, and on-demand home care services.

To complete the report, PGIM analysts interviewed investment professionals, conducted new proprietary research, and met with industry experts.  It was released March 21.