Senior Living Industry Expects Higher Transaction Volume, Flat Or Lower Cap Rates In 2025

Most respondents in a recent survey said they expect transaction volumes to increase this year compared to last, while also projecting capitalization rates to remain flat or compress.

That’s according to the BBG Real Estate Services’ Senior Housing Investor Survey, completed in March of this year and released this week. Key takeaways from the company’s third annual survey include the potential for cap rate compression, increased transaction volume, and projected rental rate increases.

A total of 96% of respondents reported a positive or somewhat positive outlook for investment activity in senior living, with expectations that cap rates will remain flat or compress, potentially improving property values in 2025.

Over 58% of respondents said they expect interest rates and overall debt availability to have “the greatest impact” to deal volume this year. Over 29% of respondents said they expect loan maturities and closed end funds reaching term limits to have the biggest impact to deal volumes this year.

Almost a third of respondents, 30%, said they expect active adult cap rates to compress by more than 25 basis points, representing the lowest among the care levels surveyed. Independent living followed, with projected compression ranging between 151 and 149 basis points.

The cap rate spread between primary and secondary markets remained consistent with past years, sitting at roughly 72 basis points for assisted living. Since 2019, memory care capitalization rates have also increased, the survey shows. The spread between assisted living and memory care cap rates averaged 116 basis points.

A total of 63% of respondents said they expect net margin expansion in 2025, up from 50.5% reported last year. Meanwhile, 82.8% anticipate operating expenses will increase between 3% and 5% over the next 12 months. Main drivers of margin pressure include staffing costs, inflation, and property insurance expenses in competitive markets.

While demand continues to support rental rate growth, 90% of respondents said they anticipate rental rate increases this year. Among them, 41% expect 5% or greater rate growth in assisted living and memory care. Rental rate increases are projected to range between 1% and 10% in 2025.

Active adult is projected to have the highest stabilized occupancy, as the broader senior living industry surpassed pre-pandemic occupancy levels in the fourth quarter of last year.

A total of 37.8% of respondents said their active adult properties had occupancy rates between 93% and 95%, followed by 39.2% of independent living respondents reporting the same. For assisted living, 40.7% said their properties were 91% to 93% occupied. Within memory care, 52.84% of respondents reported occupancy ranging between 87% and 93%.

Regarding net occupancy absorption, 75% of respondents expect 3 to 8 units to be absorbed per month in active adult, independent living, and continuing care retirement communities (CCRCs). Occupancy increases are anticipated across all sectors this year—except for CCRCs, the report found.

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