Distinguishing active adult rental communities from multifamily options – and weathering current multifamily market dislocations – will be key to driving the success of active adult as this asset type continues to mature.
Indeed, developers and operators are well aware that the industry is in its “infancy stage,” as Michael Levine, senior managing director of active adult real estate at Greystar, put it during a recent Senior Housing News webinar.
“We’re trying to define ourselves as an industry,” Levine said. “Active adult is continually educating people … We probably have three to five calls a day with different investors that are just educating them on the space and specifically on prospects.”
With the overall growing demand for senior housing, particularly with the baby boomer wave being on the industry’s doorstep, active adult providers are still optimistic and excited about what the future is going to bring despite current challenges.
“The multifamily market is causing some challenges in development for us in the short term and being able to extrapolate what revenue will be compared to the multifamily market in a lot of markets, but we are very, very bullish long term on the sector, and excited to talk about the growth,” said Laurie Schultz, principal and co-founder at Avenue Development.
Overcoming challenges
Active adult rental communities have boomed in recent years, as a product that involves elements of both traditional senior living and multifamily apartments. As such, active adult communities are affected by market conditions affecting these other types of housing. At the moment, certain multifamily markets have been dislocated, and there is concern that oversupply in certain markets could lead to further financial distress.
“We need … markets of multifamily around the country to restabilize, because active adult was never built to run against destabilized multifamily markets,” Levine said. “So, we’ve kind of struggled a little bit with that in ‘24 and we will see that in ‘25.”
That said, while the multifamily market has been seeing a destabilization as a whole and is experiencing negative renewal rates, Levine noted the active adult sector is bucking those trends. For Greystar, active adult is seeing an average of 6% to 8% renewal rate, though in some instances it reaches 10%.
But the differences between multifamily and active adult rental rates can be nuanced. For example, active adult generally can command a rental premium compared with multifamily properties. But renters are paying that premium for benefits such as greater opportunities for socialization and programming, and those benefits are only possible as occupancy grows. Therefore, the active adult premium only becomes meaningful at stabilization.
Once the rental premium can be established, it generally falls in the 12% to 23% range, depending on how high-end the community is, Levine estimated.
Looking ahead, truly differentiating the active adult product is going to be one of the key things the industry is going to have to focus on, the panelists agreed.
Ben Burke, managing partner at Headwaters Group, said explaining and establishing the product is both a challenge and opportunity, which is why the company has been focusing its efforts on educating investors.
The industry is also having to define how it is different from newer communities or other options that are emerging for older adult living, such as the Margaritaville brand. One thing that helps as a whole is the general affordability of active adult communities.
“We’re providing sort of a for rent option that we think fits maybe better for a bulk of the population’s wallets,” Burke said.
According to Schultz, between 20% and 30% of boomers in the next decade are only going to have a savings of $25,000 or less, which should lead to active adult seeing an additional incoming demand due to being less costly than independent living and assisted living.
And while the active adult rental market is becoming segmented into higher-end versus more mid-market products, even more affluent consumers are sometimes opting for a lower price-point option. Payer lower rents frees their budgets for pursuits such as travel.
That’s one reason why the vast majority of projects that Greystar is working on underwriting right now fall more into the mid-market category, Levine said.
“I think that [more affluent] customer is going toward mid market,” he said.
State of active adult in 2025
According to Burke, Headwaters Group’s active adult portfolio is averaging a 93% occupancy rate. Buildings that are between five and seven years old are averaging a 95% to 97% occupancy rate, most of which is being driven by renters aged 65 to 74. Burke said that cohort has grown from 6% to 10% over the past decade to nearly double that.
At the moment, demand is largely driven by renters aged 55 to 64. Looking ahead, an additional 2.2 million renters are expected to reach the industry over the next decade, Burke said. The incoming demand and limited amount of new supply entering the market, with only 2,500 units added in 2024 compared to 4,800 added in 2023, “underpins why Headwaters is in this space.”
Still, the active adult industry will have to figure out “acuity creep,” in which active adult residents age in place for so long that their medical needs increase. This can compromise the active adult value proposition, but of course extending length of stay as long as appropriate is good for the bottom line and the resident experience. Schultz said leaning into getting residents to stay longer is part of Avenue’s Viva Bene brand, which brings in healthcare partners, wellness services and keeping residents more engaged in the community to delay the acuity creep.
“We want the residents to be healthy and stay with us longer and keep their rent checks coming to us and not back to our friends in senior living,” Schultz said, noting residents have spoken about hesitations in going into active adult communities due to concerns of having to move into independent living in a year or less.
Keeping this in mind, Greystar has been adjusting its age targets for renters coming into active adult. In 2018, the average age was 76.5. Two months ago, it was 71.8, Levine noted.
Overall, he said that this is yet another distinction between active adult and multifamily housing: Active adult is more prone to early move-outs than multifamily, given that residents are more likely to develop care needs.
“We need to be ahead of that and be proactive, so [addressing] lease expiration, management, creative marketing and just different programming, and really reimagining what programming looks like in the next year or two,” he said. “And I think we have to continually do that as this product evolves.”