The national occupancy level for seniors housing in Canada is expected to surpass pre-pandemic levels by year end as demand is growing while new development slows, according to a new report from Cushman & Wakefield.
The 19-page report said the seniors housing sector's year-over-year occupancy to date is up 4 basis points to 88%, with several markets reporting mid-90% occupancy, pointing to favourable supply and demand fundamentals.
The increasing size of Canada’s elderly and demand for housing catering to their needs is creating "meaningful growth" for the seniors housing sector, according to Cushman & Wakefield.
"The compelling supply and demand fundamentals for private-pay seniors housing rental communities in Canada are underpinned by structural shifts in population demographics that will drive seniors housing user demand over the next 20 years," the brokerage said in the report.
Cushman & Wakefield said over the next decade it expects about 200,000 new seniors housing suites would be required to maintain market equilibrium, but less than 73,000 such suites were built during the past decade.
"Despite the well-telegraphed increase in demand, seniors housing development activity in Canada has slowed to a new cyclical low, as rising construction costs and interest rates have crowded out investment," according to the report, which said projected demand growth is expected to overwhelm the existing inventory of rentals in the next few years and create shortages.
'Superior rent growth'
The report surveyed 17 markets and found that occupancy increased by about four basis points on a weighted average basis over the past year to about 88%.
Since the second quarter of 2021, occupancy is up by over 8 basis points, with leasing velocity increasing in most markets. Positive net absorption, or the net change in occupancy, has occurred in 16 of the 17 markets surveyed since 2021.
The tighter markets are also leading to more rent growth across the country, with the average rent for seniors housing suites increasing 3% to 5% year-over-year so far in 2024.
"We predict that a superior rent growth profile will become a hallmark of the seniors housing asset class in the coming years, as vacancy decreases and demand outpaces supply growth," Cushman & Wakefiels said in the report.
Publicly traded seniors housing companies are reaping the benefits of those improving fundamentals.
"Thus far in 2024, seniors housing REITs have generated the strongest return of 28.2%, while office REITs have generated the weakest return of negative 7.2%," noted Mark Rothschild, an analyst with Canaccord Genuity, in a report this month.
Jonathan Kelcher, an analyst with TD Cowan, said Chartwell Retirement Residences is his top pick in sector.
"With retirement fundamentals set to remain strong over the next several years (on the back of very little new supply and about 4% annual growth in the 80+ population), we expect Chartwell to deliver above-average earnings/net asset value growth over our forecast period," said Kelcher, in a note on the Toronto area REIT.