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LOS ANGELES—Flight to quality has long marked senior housing development and this year will be no different with labor and construction costs expected to rise, according to a new report by CBRE.
Total cost for a seniors housing development rose by 6.4% in 2019 to an average of $317 per square foot. The average cost per revenue unit was essentially unchanged, while the average number of total revenue units per property decreased to 106 from 128, CBRE says.
Average returns rose to 9.5%, up approximately 60 basis points in 2019, which CBRE attributes to an uptick in perceived risk due to lower occupancy rates on a national basis.
“While seniors housing development activity is expected to remain strong in 2020, returns on cost expectations have increased, which is evidence of elevated perceived risk,” James Graber, managing director of CBRE’s Valuation & Advisory Services, says in prepared remarks. “Developers are applying a more rigorous project selection process to position each planned community for success; this disciplined approach has resulted in a tempered number of construction starts projected for this year.”
Hard costs, such as labor, sitework, foundation, building shell construction, roofing, interior finishes, landscaping and signage, represent the largest portion of total development cost at 66.8%.
Soft costs, which include inspection fees, construction loan-related costs, architectural/design costs, project management, follow at 19.5%, and site acquisition costs at 10.1%.