Independent living prices dropped in the four quarters ended September 30, 2018, but not as sharply as assisted living did. Buyers paid on average $219,600 per unit for independent living communities, down from a near-record high of $241,300 per unit during the last four-quarter period. Why the smaller drop? The IL market has seen much less development in the space (and has seen more stable average occupancy as a result), and its less staff-intensive model lessens the future labor risks. However, this smaller market is still sharply divided between the luxury, high-rent and high-margin IL communities built in high barrier-to-entry markets, and the more middle-market communities. It’s those lower-quality buildings that may be the hot commodity in the coming years when Boomers with less in their savings accounts want (or need) to move out of their homes.

The average IL cap rate rose 25 basis points to 7.45%. That is more in line with the drop in average prices, as the cost of borrowing keeps ticking up. The growing interest in the active adult 55+ space may cause some buyers to price a little more cushion in their IL investments too.