Despite labor and economic challenges, there is reason to be optimistic that the senior housing market is rebounding, according to a recent report from Marcus & Millichap.

For starters, occupancy has been increasing steadily. According to data from NIC MAP Vision, senior living and care occupancy for November to January had recovered 5.2 percentage points above a pandemic low of 77.8% in June 2021, standing at 83%.

Some locations are seeing a greater surge in demand than others and are poised for quicker recovery, according to the report, which also noted that senior housing occupancy is rebounding more quickly in Florida, Texas and Arizona than in other parts of the country.

Across the country, memory care and assisted living have seen the biggest surges in occupancy among the industry, followed by independent living and continuing care retirement communities, Marcus & Millichap said. The report did not comment on skilled nursing.

“Meanwhile, a resurgence in demand has coincided with a slowdown in construction,” the report authors said. “Inventory growth during 2022 was the slowest in nine years, and almost 20% fewer units were underway entering 2023 relative to the five-year annual average preceding the pandemic. This confluence of returning demand and descending development, paired with longer-term tailwinds from an aging baby boomer cohort, supports a more upbeat sector outlook.”

The construction pipeline is small, as builders must factor in higher borrowing costs, which are expected to last through this year and possibly longer, according to the report. Almost half (45%) of all senior housing construction is taking place in the Southeast, Mid-Atlantic and Southwest areas of the country.

Consolidation, rather than construction, is driving senior housing investors, according to the report. Some private investors, the authors noted, are looking to redevelop or consolidate instead of undertaking new construction. 

“Amid fundamental stress during the early stages of the pandemic, followed by a rapid increase in interest rates, the divide between major buyers able to aggressively expand their portfolios during a window of opportunity — and smaller investors needing to weather the storm — has become increasingly evident,” Marcus & Millichap said.