As populations age and life expectancy increases, the real estate sector is seeing significant changes in demand, according to Morgan Stanley Research. The firm identifies longevity as one of four major themes expected to shape industries and investment strategies in the coming years.
Lauren Hochfelder, Co-CEO of Morgan Stanley Real Estate Investing (MSREI) and Head of MSREI Americas, commented on how these demographic shifts are influencing housing needs. "With so much uncertainty in markets and the political realm, one thing we can be relatively sure about is that people are getting older. We can forecast with considerable confidence approximately how many 80+ year olds there will be over the next decade, and we know how much wealth they currently control."
She explained that as people move through different life stages, their requirements for real estate change. "As people age, their real estate needs evolve. Whether it’s millennials who need more space, or baby boomers who seek housing with care options, aging and longevity significantly influence the composition of demand for real estate."
Hochfelder also emphasized the foundational role of real estate throughout a person's life: "Real estate serves as the foundational infrastructure of our lives. We might begin in student housing and then move to an apartment in the city. Later in life, we may move to a house in the suburbs and eventually consider senior housing. Aging impacts every type of real estate, and it reflects our changing needs throughout our lives. Thus, as investors, our understanding of demographic shifts is critical for projecting where supply/demand imbalances will exist in the future."
Morgan Stanley Research points out that senior housing is likely to see increased demand due to both an aging population and rising longevity rates. According to Oxford Economics data cited by Hochfelder, while overall population growth remains flat, the number of people aged 80 and above is projected to grow nearly 5% annually over the next five years.
"Beyond the sheer number of potential tenants, we see stronger affordability in senior housing relative to some other residential segments as Boomers currently control more than half the wealth in the US, having benefited from significant long-term home price appreciation and equity market participation," she said. "In contrast to most other renters, who pay rent with wages, residents in senior housing typically use their savings, which is more quantifiable in the present."
Hochfelder added that senior housing provides more than just accommodation: "Senior housing is more than just infrastructure; it fosters social connections among its residents. It also efficiently delivers care, allowing residents to age in place as they transition from independent living to assisted living… Thus, the growth of senior housing continues to redefine what it means to live longer and enhances the quality of life as we age." She noted that programming at such facilities helps address social needs alongside healthcare.
From an investment perspective, current trends may offer opportunities for those interested in senior housing assets. New construction has decreased by 60% compared with pre-pandemic levels while construction costs remain high—factors expected to limit new supply going forward. This could support rental growth and asset value appreciation.
Additionally, while equity markets have reached record highs recently, valuations for real estate assets are still below cyclical peaks. Yields are above historical averages and properties can often be acquired at prices below replacement cost.
Hochfelder concluded: "Longevity is an important investment theme across categories. Senior housing and real estate more broadly offer investors an attractive way to capitalize on enduring demographic drivers of demand, while enjoying durable income, the benefits of substantial inflation hedging, and low-correlated diversification."
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