This year’s economic challenges for senior living and care will be “somewhat mixed,” according to specialty investment bank Ziegler’s annual recap of the previous year and predictions for the year ahead.

Last year was marked by economic uncertainty as providers navigated occupancy gains, pressure on operating margins and staffing issues, the report noted.

Interest rate increases and inflation throughout 2023 were prime challenges for senior living and care operations. 

Megan Cunnigham, Ziegler senior analyst and author of the annual review, noted that although occupancy in the senior living and care space continued to rise throughout 2023, “workforce shortages, wage growth and increased inflationary pressures continued to cause margin compression and forced many communities to significantly increase resident rates.”

Additionally, labor challenges persisted throughout the year. As a result, some skilled nursing facilities had to reduce their number of beds; others closed or were sold to another provider, Cunningham noted.

Looking to the year ahead

Looking into the proverbial crystal ball, Ziegler predicted that this year’s economic challenges for senior living and care will be “somewhat mixed.”

In essence, some will win and some will lose, according to the bank. Struggling organizations will provide opportunities for acquisitions and affiliations for others.

“Others are opting to use this time of elevated interest rates to pause planned projects and focus on organizational repositioning, increased efficiency and revenue diversification until the lending environment softens,” according to the analysis.

Still others might use this time to begin new construction projects in anticipation of the so-called silver wave of older adults who will be looking for communities within the decade.

Nursing homes’ dependency on agency staffing has begun to decline. That situation, however, could change with a federal minimum staffing requirement for nursing homes coming down the pike, according to Ziegler. Industry officials have pointed out that the mandate also could affect employers elsewhere on the continuum because they compete for workers from the same pool.

“With admissions to nursing schools still down, as well as the increased competition among various healthcare settings, this mandate could force many providers to further reconsider

their census,” Cunningham said. “Some have already opted to reduce or remove skilled nursing units altogether. The mandate could also cause some providers to return to agency use, re-introducing payroll expense pressures.”

The year ahead also may cause some providers to struggle with staying in the black, according to Ziegler. Increased operating expenses already have led to increased fees by some providers. 

“This year will likely continue to be a balancing act of avoiding a deficit due to potential increased labor pressures, low reimbursement rates and slightly elevated inflation, while being careful not to price out of the market,” Ziegler said.

Refinancing debt will be challenging in the year ahead due to increased interest rates, according to the report, which added that lower rates would be a boon to the sector.

It’s anyone’s guess, however, as to whether or when the Fed will move to decrease interest rates, according to experts who spoke Tuesday at a webinar sponsored by National Investment Center for Seniors Housing & Care.

Technology always is a plus for operators, Cunningham noted, as workforce-related technologies help with recruiting and retention efforts as well as with ongoing training.

The SNF segment is expected to continue to face unique challenges, Ziegler said. Skilled nursing providers will continue to look for creative ways to keep facilities alive, such as partnering with assisted living providers to care for residents who have greater health needs, according to the analysis.

Mergers and acquisitions activity likely will continue into 2024, according to the analysis. Back in July, Ziegler noted that not-for-profit senior living and care merger and acquisition activity was moving at a record pace. The third quarter, however, saw the second-lowest quarterly deal total since the third quarter of 2021.

Demand will drive the opportunities in senior living and care this year, the analysis concluded.

“The industry has long-awaited this new wave of retirees. Industry stakeholders are tasked with planning for a new consumer,” including the increasing number of middle-income older adults, Cunningham said. 

“This will include the need for innovative technology solutions, investment in renovation and building new spaces, finding more ways to serve seniors in their homes and units, as well as ways to grow that enhance the organization’s ability to withstand operational pressures from inadequate reimbursement and workforce shortages,” she added.