Sustained demand for senior living and development constraints are setting up increased transaction velocity for the remainder of this year.
That’s according to the new Marcus and Millichap 1H2026 report, released last week. The shortage of new senior living development projects is not new, but the report’s authors note that financing and labor pressures continue to “weigh on development,” with the pipeline for new projects continuing to shrink in 2026. This has been driven by construction material costs continuing to rise, peaking in March 2026, while the U.S.-Iran war diminished the chances of a U.S. Federal Reserve interest rate cut.
Without the prospect of an interest rate cut in the near future, future projects are now “pricing in no additional policy changes,” which will keep borrowing costs higher, according to the report. The report also notes the “continued difficulty” of operators attracting and retaining staff while dealing with compressing margins.
“Collectively, these factors are likely to sustain a challenging environment for debt and equity providers, limiting new starts in the near term,” the report states.
The biggest takeaway for senior living providers should be the fact that the “market continues to gather momentum,” according to Marcus and Millichap Chief Intelligence and Analytics Officer John Chang. That’s based on baby boomer demand and as the 80-and-older population continues to expand over the next five years.
“This structural, long-term demand growth will support the sector even as new construction of seniors housing facilities tapers. As a result, the supply and demand imbalance will increase, supporting seniors housing performance,” Chang told Senior Housing News.
At the same time, capital markets have “become increasingly unpredictable” as rising inflation contrasts with dwindling expectations of a Federal Reserve rate cut, which could lead to “possible rate increases” by the end of this year, Chang added.
“That said, an end to the conflict in the Middle-East could force a rapid recalibration of the rate outlook. So, while the capital markets are currently difficult to predict, they will undoubtedly be more volatile than normal,” Chang told SHN.
But senior living investment opportunities remain “one of the best positioned” opportunities in 2026, although they require partnerships with experienced operators with “seasoned operations and staff.” In the future, the sector “will favor” investors that have “solid infrastructure and seasoned staffing.”
Affordability, an issue the industry has grappled with in recent years, continues to be a concern for middle-income older adults as rent growth occurred across all sectors of the continuum. With average monthly costs ranging from over $4,000 in continuing care retirement communities (CCRCs) to over $8,000 in memory care, the report shows that a “growing share of households” lack the financial flexibility to make a move into a community.
“As a result, future demand may struggle to translate into realized occupancy within the middle-market segment, reinforcing the need for more scalable models and public-private solutions to expand access for middle-income seniors,” the report’s authors wrote.
While development remains unattractive, many senior living capital groups and investors are turning toward existing assets and picking out stabilized and cash-flowing properties for expansions or repositionings. This comes as the U.S. saw its highest level of transaction volume since 2019 last year as pricing is “nearly aligned” with replacement costs, making existing asset transactions most popular this year, the report states.
“Over the longer term, the impending supply gap, coupled with growing functional obsolescence across aging inventory and the potential for improved financing conditions, could gradually redirect investment toward development,” the report states.
Underscoring these trends on development and transactions is the demographic shift and rising acuity of older adults in need of care, with the 65-and-older population expanding over 30% in the last 10 years. While demand for senior living remains strong, the report notes that companies will experience a “more gradual pace” of occupancy recovery as rising home values and the desire to age in place continue to limit senior living adoption.
