Senior living’s lagging development pipeline and improving operating performance are making acquisitions more competitive in 2026.
That’s according to the Walker & Dunlop 2026 senior housing outlook report. The report describes a senior living industry moving past recovery and into a “scarcity-driven cycle” driven by higher occupancy, stable rent growth and growing access to capital. Meanwhile, rising asset prices are laying a foundation for future development.
In the third quarter of 2026, the national occupancy rate for NIC primary markets was 90.4%, up from 89.8% in the second quarter. At the same time, rolling four-quarter construction starts totaled roughly 5,100 units compared with the long-term average of 15,600 units.
This imbalance is helping existing communities gain revenue while attracting more institutional investors to the sector. The report cites data showing $6.8 billion of senior housing transactions in the second quarter of 2026, a 44% increase from 2025. The rolling four-quarter volume totaled $32.2 billion, which is an increase of 74% year-over-year.
Real estate investment trusts (REITs) accounted for 36% of transactions in 2026, compared to 15% in 2023. Value-add, middle-market properties for sale typically generate five to 10 offers, whereas institutional-grade assets “can, and often do,” receive 10 or more offers. This is a “significant shift” from the past, the report notes.
“Resistance to historically high price-per-unit levels is also diminishing when asset quality, market position, and operating upside support the investment thesis,” the Walker & Dunlop report authors wrote.
Increased construction costs are supporting a stronger buyer appetite as buyers can acquire high-quality communities below replacement cost in most markets, while a limited number of new communities supports higher rent growth underpinning investor return expectations.
Investors are accepting lower initial yields as they expect occupancy gains, rate increases and operating improvements will lead to stronger returns within the first year after a community trades hands. For these buyers, access to capital and past partnerships with strong operating partners can make the difference in a transaction working out or stalling before a deal is made.
“Owners with strong operating platforms, established operator relationships, substantial liquidity, and an advantaged cost of capital can compete differently for opportunities,” the authors wrote.
Appeal for senior living transactions shows investor confidence in the sector’s long-term demand. In comments cited in the report, KKR Real Estate President and Partner Chris Lee said senior housing was the asset management company’s “highest conviction area over the past three years.”
The number of investors interested in senior living acquisitions is also growing, which is supporting broader investment activity. Banks, life insurance companies, agency lenders, alternative asset managers and other capital providers are competing for assets today.
The report notes that senior housing frequently offers positive leverage, meaning that borrowing costs are below starting yields, and debt can improve returns from the beginning. While some institutional buyers are seeking more complex turnaround opportunities, a large portion are seeking communities they can buy with cash and later add debt.
But even as the investor pool widens, it doesn’t eliminate the negative impacts of rising interest rates. Higher borrowing costs can reduce loan proceeds and impact pricing expectations of buyers that could create near-term challenges in senior living mergers and acquisitions, the report said.
Improving operations at the community level is also helping to fuel investor demand for senior living. Rent growth reached 4.7% in the second quarter of 2026, and that figure has exceeded 4% year-over-year for 17 consecutive quarters, the report notes. REITs including Welltower, Ventas, Janus Living and American Healthcare REIT have reported double-digit same-store senior housing net operating income growth in the second quarter, according to the report.
But operating performance gains are not guaranteed. Revenue management, staffing, resident acquisition and retention of staff, along with daily operations, impact whether a community meets expectations.
“As acquisition competition increases, investors paying aggressively for high-quality assets need confidence in the operating plan required to grow into their basis,” the report’s authors wrote.
Even as the same supply constraints are benefiting existing owners, the same fundamentals are starting to change the economics around new development. Development in high-end private-pay markets where rents can support higher costs, alongside middle- to upper-middle-market projects in secondary and tertiary locations, is possible today through efficient design and amenities that can help keep operating costs down.
Equity remains more skittish than lenders, and local demand, attainable rental rates, sponsor quality and operator alignment will help shape development in the future, the report said.
But challenges on rising operating expenses and affordability concerns remain. Continued rent growth will make affordability more of an issue as labor costs, capital needs and financing could complicate buyer assumptions about future net operating income (NOI) growth.
The report’s authors don’t expect a construction wave as seen in 2017 or 2018, and the construction timeline for new projects will continue to take longer to get new supply to market. In the meantime, this leaves existing owners well-positioned to benefit from limited competition while investors seeking new supply must weigh whether or not to take on construction risk.
“The strongest opportunities in the next phase of the cycle are likely to favor investors that pair informed capital with disciplined operating execution,” the report’s authors wrote.
