Supply Vs. Demand: Inside Senior Living’s Growth Challenges In 2025 And What Comes Next 

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In 2025, demand is surging. The rate of newly built communities is not. If the industry does not move faster and conditions persist into next year, it will run into challenges as it seeks to grow for the boomer generation.

A big development rebound is unlikely for 2025, exacerbated by inaccessibility to financing as lending remains a barrier to new growth.

Myriad factors complicate the current gap between new units entering markets and accelerating demand, including sustained increased construction costs and lack of access to financing favorable to start new projects.

“We see this as a three-to-five year runway with the current conditions and we’re going to have an imbalance,” said Phoenix Senior Living CEO Jesse Marinko. “Absorption is happening but I think you’re going to see some repositionings that can’t afford the financing they have in place.”

Last year, The National Investment Center for Seniors Housing and Care’s NIC MAP team released data showing an approximate $1 trillion need for additional inventory to maintain current penetration rates. Total senior living inventory is expected to increase 4.1% by 2027, half of what is needed to meet current demand growth in the coming two years.

Existing senior living units are being filled at a rapid pace contrasted with the pace of new construction, with 28 units absorbed for every 10 that are added, according to data between 2021 and 2023 tracked by NIC MAP.

Senior living experts, developers and operators told Senior Housing News that it’s possible that these unfavorable conditions could continue in the coming years, dependent on changes in capital markets and reduction in construction costs, for development in senior living to reach pre-pandemic levels.

But even with all of this uncertainty and pessimism, some operators see the prospect of strong demand and future construction to meet that demand continues to fuel cautious optimism.

Financing remains a barrier to growth

In 2025, there are multiple headwinds affecting new construction and development. For one, lending and financing is still hard to get, and the U.S. Federal Reserve may not cut interest rates this year.

For Phoenix Senior Living, The Roswell, Georgia-based operator recently acquired three properties in the Atlanta market while also growing its active adult brand.

“If you have the capital and you have the right structure and support, it could be an amazing time for some operators to seek growth and it could potentially be a record period of time for senior housing,” Marinko said. “But if you’re not well-capitalized or your debt isn’t working out, someone’s going to have to take a loss and if you’re not structured in the right way with the right capital it’s going to create challenges.”

Phoenix’s largest joint venture capital partner is Toledo, Ohio-based ReNew REIT, along with Locust Point Capital while managing over 20 communities on behalf of the RMR Group (NASDAQ: RMR) and Diversified Healthcare Trust (NASDAQ: DHC).

In 2025, expect many of the prevailing hurdles to accessing capital to continue, according to NIC Senior Principal Caroline Clapp. She referenced the state of the current 10-year Treasury yield curve as a long-term barometer for what’s ahead for companies in seeking new financing.

“It looks like financing costs aren’t going to come down as quickly as anticipated in 2025,” Clapp said.

Much has been said about the influx of the baby boomer generation into senior living, with operators starting to see the first effects of a new generation entering their communities. The oldest boomers turn 80 next year, and by 2030, all Baby Boomers will be 65 or older, according to the U.S. Census Bureau data. More broadly, over 4.1 million people will turn 65 annually between 2024 and 2027, according to the Alliance for Lifetime Income.

“Rising demographics will not fix a broken on-site team or sheer incompetence,” said Pegasus Senior Living CEO Chris Hollister, who believes that struggling properties that opened in recent years “need to get fixed or transformed into something else.”

What that is remains to be seen.

Dallas, Texas-based Pegasus Senior Living in July 2024 took on management of eight LifeWell Senior Living communities, and the company now operates 43 communities in 13 states.

But Hollister stressed that operators must be ready for the shifting demographics brought by the outsized-boomer cohort, noting that the “overhyped” influx of boomers was now “finally arriving—but slowly.”

“The entire decade of the 2030s will see truly unprecedented growth in the 85+ population, and hence underlying demand for senior living,” Hollister added.

That’s why, Hollister said, operators should make “solid progress” on occupancy and growth “unless their platform is woefully outdated or poorly designed or have major operational and clinical challenges.”

In recent years, Dallas, Texas-based 12 Oaks Senior Living President Greg Puklicz said he equates the slow ebb of demographic-driven demand in senior living similar to famous playwright Samuel Beckett’s Waiting for Godot, waiting patiently for events that haven’t yet come to pass.

“People are waiting longer to come into senior living,” Puklicz said. “But it’s going to hit a breaking point and they’re going to flood in and I think 2026 and beyond is really when we see a big supply problem in the market.”

12 Oaks has grown quickly in recent years, now managing 38 communities across five states.

Developers plan for sustained challenges ahead

Supply of new units is compounded by the fact that construction costs for new senior living units continue to rise as materials and labor remain expensive.

Building a mid-level independent living unit in the summer of 2024 costs $237 to $284 per square-foot, up from $233 to $ 280 in 2023. High-end, luxury independent living costs have increased to $281 to $360 per square-foot, up from $272 to $354 in 2023. Mid-level assisted living unit build prices have also increased $5 per square-foot from 2023 to $274 to $349. Construction costs also have increased similarly for high-end assisted living products, Weitz Construction data shows.

The current moment of poor financing and construction cost conditions has made for a uniquely challenging moment, Avenue Development Principal and Co-Founder Laurie Schultz told Senior Housing News.

“We will not see a decrease in construction pricing even when macroeconomic trends show a weaker economy, and we don’t have the construction labor in this country,” Schultz said. “There’s not enough people in the trades and we cannot get enough people to supervise on site and on top of that we have an immigration problem.”

Schultz believes the industry must pivot away from an “all-inclusive” operating model because of the strain it puts on operations and the overall lack of licensed care workers.

“We continue to be this all-inclusive model that our industry cannot afford anymore,” Schultz said.

Avenue Development is preparing to open a community in Indianapolis, Indiana with plans for a 116-unit community near Chicago, Illinois by 2026. In future projects, Schultz sees developers and operators taking a similar approach seen in the hotel industry: pivoting away from large concepts to boutique-style residences spanning just over 100 units.

“We want to become a destination and boutique and be more interesting across independent living, assisted living and memory care, and even active adult,” Schultz said.

Higher interest rates, increased construction costs and construction labor shortages continue to drive the senior living supply and demand gap, Weitz Construction Senior Vice President Larry Graeve told SHN. Another underlying issue, even if properties get built in the next three years, Graeve said the industry must grapple with affordability and accessibility of their product. Weitz Construction has recently completed projects for Lifespace Communities and Covenant Living.

“The need for senior living is there but it’s just that a lot of people can’t afford it under the traditional way we’ve been delivering the product and so maybe there needs to be a shift of how we build and develop senior housing in the future,” Graeve said.

To spur future development, Graeve sees senior living operators potentially “pivoting to standardization” either through modular builds or standardized projects that can work out at similar sites across all types of markets to reduce build costs and speed up construction timelines. Alternatively, Graeve said operators could pursue repositionings of existing properties to better capture incoming demand, a route many operators have undertaken in recent years.

For Northfield, Illinois-based development firm Integrated Development II, CEO Matt Phillips views the current lack of new construction a result of sustained capital market challenges. The company is a co-investor with Affinius Capital for the redevelopment of two former mall properties into luxury senior living in Aurora and Vernon Hills, Illinois.

The Aurora project is projected to start construction in the third quarter of this year and be operated by Solera Senior Living once opened.

“It makes sense to get development started now because it takes so long and if we wait until the spigot comes on from the lenders, it’s still going to take us 12 to 18 months to get a project ready to go,” Phillips told SHN. “We’re trying to get our projects lined up so that we are truly ready.”

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