Like many property types, seniors housing investment returns fell in the second quarter of 2020 as the effects of the COVID-19 global pandemic and the utter collapse of the economy took their toll. The total investment return for the seniors housing sector was a negative 1.00% in the second quarter of 2020, the first negative return since 2Q 2012.
The income return remained positive but was the smallest increase on record as far back as 2003. The appreciation return fell 2.04%, the third consecutive quarterly decline, making the valuation return a negative 2.43% since 4Q 2019. Many investors reduced their appreciation expectations in the first half of the year as the impact of the coronavirus weighed heavily on their view of the sector.
Comparatively, the total negative return of 1.00% was on par with the NPI which fell by -0.99%, but was slightly worse than the apartment sector performance, which dropped by -0.63%. Hotels plunged by a whopping 16.59%, retail by 3.85% and office by 0.50%. The only sector that did not see declines was industrial, but even there, the appreciation return was negative, albeit slightly (- 0.07%). It is notable that, like other property types, transaction volumes were very limited in the second quarter, making price discovery challenging.
The annual total return through the second quarter of 2020 was 3.52%, outpacing the NCREIF Property Index (NPI) result of 2.69% and the apartment result of 2.98%. On a ten-year basis, total returns are higher at 11.79% for seniors housing—more than 2 percentage points higher than the NPI or apartment returns. The total annual return for seniors housing has been trending down since mid-2014 when it peaked at 20.37%. This pattern can also be seen in the broader NPI index and is due to the appreciation return which tends to slow at this point in the real estate cycle.
These performance measurements reflect the returns of 123 seniors housing properties, valued at $6.3 billion in the second quarter.
See my full Quarterly Highlight in the recent National Council of Real Estate Fiduciaries (NCREIF) Real Estate Performance Report.