Development costs determine replacement value and provide intelligence for investment decisions. This report examines the change in development costs for seniors housing and their impact on developers’ return on costs. Key findings include:

 

  • Total cost in 2018 increased by 5.3% to an average of $298 per sq. ft. or $270,200 per unit.
     
  • Returns on cost generally ranged from 7.7% to 9.9% in 2018. While the average of 8.9% was unchanged from 2017, achieving these returns is becoming more challenging.
     
  • Development projects in 2018 were larger in size than a year ago. The average unit count was 128, up 5%. Total gross building area increased by 4%.
     
  • Construction starts have been declining since the 2016 peak and are at their lowest level since 2014. The National Investment Center for the Seniors Housing & Care Industry (NIC) reported Q3 rolling 12-month starts at 28,013 units, down 14% from the 12 months trailing Q3 2017. 
     
  • Rising construction costs coupled with developers’ focus on maintaining current yields are expected to keep construction starts at more moderate levels.