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Seniors Housing Returns Moderate, but Continue to Outpace Broader Property Index

Investment returns for seniors housing historically have outpaced the overall NCREIF (National Council of Real Estate Investment Fiduciaries) Property Index (NPI), a property-level index that tracks investment return performance for commercial real estate. But while seniors housing returns outperformed the NPI in the first quarter of 2017, the total annual return for this sector has been slowly trending down since mid-2014.

First-quarter investment return data for the NCREIF-reported seniors housing properties equaled 3.62%, composed of a 2.25% capital return and a 1.37% income return. The annual total return through the first quarter of 2017 was 12.05%, overshadowing the NCREIF Property Index (NPI) result of 7.27% and the apartment result of 6.73%. However, industrial total returns slightly outpaced seniors housing at 12.18%.

Despite the relatively strong showing, the total annual return for seniors housing has been slowly trending down since mid-2014 when it peaked at 20.37%. The annual appreciation return has also been slowing and, at 5.91%, was the lowest for any trailing four-quarter period since mid-2014, while the 5.87% income return was below its long-term average of 6.78%. The slowdown in annual income and capital returns has also been evident within the broader NPI.

On a 10-year basis, total returns for seniors housing exceeded both the NPI and apartments by more than 400 basis points.  The difference with hotel was even larger at 675 basis points (11.13% versus 4.38%), while the difference with retail was the smallest of the other five main property types at 297 basis points (11.13% versus 8.16%).

These performance measurements reflect the returns of 86 seniors housing stabilized properties, valued at $4.1 billion in the first quarter.  This is the first quarter that the total value of the NCREIF universe of seniors housing exceeded $4.0 billion, roughly 1% of the overall NPI, which was valued at $533.8 billion in the first quarter.

 

Property Investment Returns for the Period Ending 1Q 2017


About the Author

Beth Burnham Mace

Beth Burnham Mace is the Chief Economist and Director of Outreach at the National Investment Center for Seniors Housing & Care (NIC). Prior to joining the staff at NIC, she served as a member of the NIC Board of Directors for seven years and chaired NIC’s Research Committee. Ms. Mace was also a Director at AEW Capital Management and worked in the AEW Research Group for 17 years. Prior to joining AEW in 1997, Ms. Mace spent ten years at Standard & Poor’s DRI/McGraw-Hill as the Director of the Regional Information Service. She also worked as a Regional Economist at Crocker Bank, the National Commission on Air Quality, the Brookings Institution and Boston Edison.

Ms. Mace is a member of the National Association of Business Economists (NABE), the Urban Land Institute (ULI), ULI’s Senior Housing Council and New England Women in Real Estate (NEWIRE/CREW). In 2014, she was appointed a fellow at the Homer Hoyt Institute and was awarded the title of a “Woman of Influence” in commercial real estate by Real Estate Forum Magazine and Globe Street. Ms. Mace is a graduate of Mount Holyoke College (B.A.) and the University of California (M.S.). She has also earned The Certified Business Economist™ title (CBE) from the National Association of Business Economists (NABE). Ms. Mace is often cited in the Wall Street Journal, the New York Times, Seniors Housing Business, Seniors Housing News and McKnight’s Senior Living and has a bi-monthly column in the National Real Estate Investor.