Concerns over additional virus contagion and occupancy declines in senior housing are taking a toll on industry stock prices, the Wall Street Journal reports.
Analysts and investors are concerned that potential residents will delay entry, due to a heightened risk for illness or death.
Shares of healthcare real estate investment trusts have fallen 50% since Feb. 24, according to FactSet, with the slide accelerating in March. This performance makes healthcare REITs, which include holdings of medical office buildings, nursing facilities and senior housing buildings, the third-worst-performing real estate sector, trailing only hotels and mall REITs.
Even before the virus hit, the senior housing sector was coming under pressure from overbuilding, which was creating a supply glut in major markets, the Journal reported. Last year, returns from senior housing portfolios were around negative 7%, whereas the S&P 500 stock index returned 29%.
“At the beginning of the year, we thought that finally, by the end of 2020, demand and supply would be at equilibrium,” Michael Souers, an analyst at S&P Credit Ratings, told the WSJ.
With estimated mortality rates four to seven times higher than the flu, Lukas Hartwich, an analyst at Green Street Advisors said he predicts the coronavirus disease 2019 (COVID-19) outbreak could reduce demand for senior housing and skilled nursing by as much as 15%.
“It could also greatly impact the pipeline of future residents who are currently 70-80 years old,” he added.
Although National Investment Center for Seniors Housing & Care Chief Economist Beth Burnham Mace said she believes the senior housing industry was well-prepared given its past experience with bad flu outbreaks, she also noted that “we haven’t seen anything like this in terms of contagion,” and said that the industry as a whole has been giving fewer property tours, which could be an indication that occupancy levels may be poised to fall.