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Senior Housing Demand Continues To Outpace New Supply

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The senior housing market appears set for a steady and ongoing recovery, with occupancy levels in 2024 expected to meet or exceed pre-pandemic levels, provided no unforeseen difficulties occur.

That is the conclusion of an analysis of 3Q 2023 data by the National Investment Center for Seniors Housing and Care (NIC).

Senior housing occupied stock is now 2.6% or 15,026 units above the pre-pandemic 1Q 2020 level, NIC found. Demand continued to outpace new supply for the ninth consecutive quarter. In primary markets, net absorption rose 1.3%, or 7,583 units, from the previous quarter and 4.3%, or 24,627 units, over the prior year. The stock of senior housing in these markets rose 0.4% from 2Q 2023, and 1.3% above the prior year, NIC stated.

However, construction remained below pre-pandemic levels, and the 11,133 units under construction in the year ended 3Q 2023 amounted to less than half the starts reported during all of 2019. A new measure of senior housing, the Absorption-to-Inventory Velocity ratio, stood at 28:10 for primary markets, which implies that for every 10 newly added units, 28 were absorbed. This indicates that the senior housing market has been able to absorb a significantly higher number of units than were added during the third quarter of 2023.

The senior housing all-occupancy rate rose to 84.4% in 3Q 2023. It remained below the 87.1% rate of 1Q 2020. However, it is expected to reach or exceed that level in 2024, NIC predicted. Risks remain in the form of economic uncertainty and the possibility of a future threat to public health.

However, current capital market conditions and the resulting lending environment, today’s relatively limited construction pipeline, and elongated delivery times of new projects suggest that supply growth is manageable and is not expected to outpace demand through 2024, the report noted.

It also pointed to differences in the all-occupancy rate between independent and assisted living facilities in primary markets. It stood at 86% for majority independent living properties, a 0.7% increase from 2Q 2023. For assisted living, it stood at 82.6%, up 0.9%. Though occupancy for both was above pandemic lows, in neither case did it reach pre-pandemic 1Q 2020 levels.

In secondary markets, though, the occupancy rate for majority assisted living facilities reached 84.3%, slightly above its 1Q 2020 level of 84.2%, indicating a full recovery explained by limited inventory growth and restrained supply pipelines. The one good thing that did emerge from the pandemic, NIC commented, is increased recognition of the value proposition that senior housing offers. It also highlighted the resilience and adaptability of senior housing operators.

 

Source: GlobeSt.

Demand For Senior Housing Ticks Up As Sector Continues COVID Recovery

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Demand for senior housing properties began recovering this quarter as vacancies dropped nationally and rent growth picked up across all four major care types.

According to a new report from Moody’s, Q2 vacancy for the asset class came in at 16.9%, still worse than the pre-COVID five-year average but 10 basis points below the peak of 17% earlier this year.

“It may be too early to say the stress has bottomed out, especially given the recent resurgence of the virus, but second quarter data did prompt a bit of optimism for the senior housing sector,” Moody’s economist Lu Chen writes, noting that the second quarter vacancy rate for independent living, memory care, and assisted living facilities all declined between 10 and 30 basis points, while the vacancy rate for skilled nursing properties remained flat.

Memory care facilities, which have been hardest hit by the pandemic, showed a vacancy decrease of 8.8%, ending the quarter at 19.9%. Assisted living and skilled nursing facilities vacancies ticked up 6.9% over the same period to 18.2% and 16.5% respectively, while the vacancy rate at independent living facilities ticked up 6.1% from 9.5% pre-pandemic to 15.9% in the second quarter of this year.

Rent growth has softened year-over-year, Chen says, since most senior housing properties post rent changes at the beginning of the year, but Moody’s data suggests that rent growth picked up across all care types. The assisted living sector posted the fastest year-over-year rent growth, followed by independent living facilities.

Meanwhile, net absorption increased into positive terrain for the first time since 2020. Memory care is back to Q1 2020 levels, while skilled nursing showed the biggest gains with 8,000 units absorbed so far this year.

“As a result of the weakness in sector fundamentals since the public health crisis, extended slowdown of new facilities coming to market is consistent with the increase in investor’s caution for senior housing,” Chen writes.

Moody’s is “cautiously optimistic” in its outlook for the sector, Chen says, citing Centers for Medicare and Medicaid Service data indicating that more than 83% of the nursing home residents are fully vaccinated. However, he notes just 26% of nursing home facilities across the US have hit the industry target of vaccinating 75% of their staff.

“Low vaccine rates among staff and residents in states such as Florida leaves the senior housing industry more vulnerable to the resurgence of the virus. Starting in the first week of July, there has been a noticeable uptick of confirmed cases among senior housing residents and staff,” Chen says. “With new mask and vaccination mandates starting to take place in many places, we will closely monitor how that’s shaping the industry demand and supply in the coming months.”

An analysis from JLL earlier this spring indicated the need to serve the middle-income population will increase, leading to opportunities for investors.

“Investors remain bullish on seniors housing and care investments,” said JLL Managing Director Zach Bowyer, MAI, head of Alternatives Asset Sectors, Valuation Advisory. “We anticipate market fundamentals to steadily improve and the market to re-stabilize between two and four years, depending on the location.”

 

Source: GlobeSt.