- What Investors are increasingly interested in adding senior housing to their portfolios
- Why Market fundamentals are strong with growing demand and limited supply
- What next Rents are expected to “grow at an outsized pace”
Canada’s senior housing market will continue to gain favour with investors as they look to rebalance their portfolios, Cushman & Wakefield said in a new report.
Canada’s aging population is driving significant demand for senior housing, with the number of residents 75 and older expected to reach 5.3 million in the next 10 years — an increase of 1.7 million people.
At the same time, construction starts have fallen to an all-time low, Cushman said, with rising costs, interest rate hikes and residual effects of the pandemic all pushing developers to postpone or cancel projects.
“Developers’ project pipelines have been reduced to a shadow of the rosters that existed a decade ago,” Cushman said.
Waning supply and little construction
Compounding the issue is the rate of obsolescence of older senior housing stock. In 2024, 1.2% of the existing senior housing units in Canada were removed from the private sector’s inventory, the brokerage found.
Of those, 44% were closed due to physical obsolescence, 32% were repurposed for government-funded senior care beds, 16% were converted to rental apartments and 7% were repurposed to alternative housing uses such as mental health facilities or student housing.
Existing inventory is largely older, with 45% being more than 20 years old. The rate of obsolescence is expected to reduce supply by 1% to 2% each year.
Just 12% of existing supply was built within the last five years. During that time frame, senior housing development costs increased 40% to 60%, Cushman said.
Occupancy is on track to reach pre-pandemic levels this year and is expected to reach 95% by the end of 2026.
With waning supply and ballooning demand, Cushman expects rents to “grow at an outsized pace” and exceed inflation. However, the point at which rents will catch up to the rising cost to build is still several years away.
Buyers re-engaging
Buyers re-engaged with sellers in a meaningful way in 2024, Cushman said, with over $2.6bn in transactions closing throughout the year.
Although this is down 20% compared with the previous year, 50% of that transaction volume took place in Q4, with momentum carrying over into the start of 2025.
The buyer pool has become “significantly more diversified over the past decade,” Cushman said. As for where they’re obtaining capital, roughly half of the buyers in 2024 were backed by private equity. Just under 44% of capital came from Canadian REITs and 7% from Canadian pension funds.
Capitalization rates adjusted as the cost of borrowing increased in 2022 and 2023, but that adjustment was not on a one-to-one basis, causing a narrowing of the spread between cap rates and borrowing costs. In 2024, that spread began to widen back out, trending toward its historical mean. This suggests growing support for an improvement in pricing, Cushman said.
