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