An aging global population is reaching a demographic tipping point that is set to create a historic shift in policy, consumer trends and government spending. One of the most urgent questions, in the U.S. as well other developed nations, is: Where will older adults live?
“By 2060, nearly a quarter of the people in the U.S. will be 65 or older, up from a record 18% today,” says Sarah Wolfe, an economist with Morgan Stanley Research. “Of that group, the number of people 85 and older—those most likely to need independent living, assisted living and skilled nursing homes—will increase from roughly 1.7 million today to 2.1 million by 2030, with growth peaking in 2050.”
This group getting is getting larger and already beginning to reshape consumer trends. Older adults also traditionally outspend younger consumers on healthcare and housing. For investors, this could mean opportunity in the coming swell in demand for providers of senior housing, medical care facilities and home healthcare.
Real Estate Evolution
Real-estate investment trusts (REITs) that own or manage senior living facilities should be major beneficiaries of the U.S. trend toward greater longevity.
"The limited supply of senior housing, as well as the demographic trends creating demand for it, are driving solid growth in occupancy and rents," says Ron Kamdem, head of U.S. real estate investment trust and commercial real estate research. Indeed, occupancy rates are returning to pre-COVID levels after plummeting during the pandemic.
Meanwhile, annual growth in senior housing rents stood at 5% in the third quarter of 2023, well above the 5-year annual growth average of 3.6%. While the cost of senior living has been prohibitive for many in this cohort, baby boomers benefit from a decade of home price increases, which has left them with per capita home equity of $250,000 on average.
Another option for senior living, continuing-care retirement communities (CCRCs), may offer opportunity for investors in the municipal bonds that finance their construction. After a wave of COVID-related defaults, especially among deals involving assisted-living units, CCRC bonds experienced a sell-off and yields are now outperforming the broader muni market. A slowdown in construction and deals may also help boost demand. In this space, Morgan Stanley analysts favor communities with occupancy rates higher than 90%, entrance fees that align with the income range of their target areas, and a high proportion of independent living units.
Forever Home
While senior housing will be an option for many, an overwhelming majority of people want to make their house their final home. Nearly 90% of older Americans said they would prefer to receive care at home, according to the 2022 University of Michigan National Poll on Healthy Aging.
“The increasing tendency to age in place, along with a shifting skew for healthcare delivery away from traditional hospital and clinic settings toward at-home care, should boost the market for those services 2.9% every year to reach $161 billion by 2030,” says Erin Wright, equity analyst covering healthcare services.
As well as being the least disruptive option for the individual, at-home care can lead to better patient outcomes by reducing unnecessary visits to emergency rooms or hospitalizations while keeping costs lower. Around 7% of older adults already use home health and hospice providers regulated and paid for by Medicare, and this proportion is expected to increase as the population ages.
Meanwhile, in a holdover from the Covid pandemic, the growing use and consumer acceptance of technology are playing a greater role in seniors’ health management through telehealth, remote monitoring and the sharing of medical records, for example.
"The fundamental desire to shift the site of care to home was planted well before 2020," says Wright. It accelerated and proved effective throughout the pandemic and will continue to blossom in years ahead. “While home health services and senior living facilities are both set for growth in the next decade, we expect home health service will continue taking share.”
Additionally, outpatient procedures are set to rise amid a shift to ambulatory care centers and physicians' offices due to expanding Medicare coverage of these options, convenience for patients and lower costs than hospitals. Investors may want to consider operators of outpatient facilities with multiple tenants, those on hospital campuses and/or operators with ties to a health system with solid financial footing.
For deeper insights and analysis, ask your Morgan Stanley Representative or Financial Advisor for the full report “Longevity in the U.S.: Trends and Investment Opportunities,” (March. 19, 2024).
