A majority of student and seniors housing operators are looking to expand their portfolios in 2023 through acquisitions and new development, and foresee rental rate growth of upwards of 5 per cent this year. Results from CBRE Canada’s recent survey of senior executives in the two sectors finds that most are also expecting increased operating costs due to inflation, asset devaluation due to rising interest rates, and a 25 to 50 basis point (bps) increase in cap rates.
Nevertheless, more than a quarter of student housing operators suggest cap rates will hold steady or compress in 2023. The vast majority (83 per cent) also maintain that market demand has returned to pre-pandemic levels, with the remaining 17 per cent projecting that will occur over the course of this winter. A minority of respondents plan to pull back on acquisitions and development compared to last year, but none intend to completely halt activity.
Looking to the future, 83 per cent of respondents in the student housing sector expect to acquire assets over the next three years. Private investment is generally seen as the primary driver of new purpose-built student accommodations (PBSA) over the next decade — flagged by 58 per cent of respondents. However, 42 per cent foresee the rising influence of public-private partnerships (PPP) as universities increasingly work with private developers.
“Confidence in the sector is driving investors to deploy more capital,” says Ryan Tran, a vice president with CBRE Canada’s alternative assets group. “The near-term outlook is positive, with strong rental rate growth expected.”
Top-ranked markets this year include Toronto, Calgary, Montreal and Kingston.
Seniors housing operators are far less likely to conclude rental demand has returned to pre-pandemic levels. A third of respondents from the sector project that should occur in the second half of 2023, but 43 per cent don’t expect full recovery of demand until 2024. Nearly a quarter intend to halt new development activity this year and 10 per cent have no plans to purchase assets; 72 per cent foresee a 50 to 75 bps increase in cap rates.
Labour shortages are flagged as the most pressing operational challenge for the sector this year, while perceptions of COVID-19 related risks are considered the biggest damper on occupant demand. Just 5 per cent of operators foresee that emerging options for seniors to stay longer in their own homes could diminish demand, and 95 per cent expect to buy assets over the next three years.
“Senior living is poised for transformational demand-supply imbalance over the next five to 15 years as surging Baby Boomer demand meets a tapered supply chain — the result being oversized rental rate growth and investment yields,” predicts Matthew Burnett, a senior vice president and head of the health care group with CBRE.
For 2023, preferred investment markets include Toronto, Vancouver and Calgary, as well as Montreal and Edmonton to a lesser degree.
