The pent-up need for senior housing resulting from the pandemic has driven record absorption across the industry over the past six months, according to a first quarter special report from Marcus & Millichap.
“The recovery last year was driven by a pent-up need for the care services that seniors housing communities provide, as well as a higher level of confidence among prospective residents once more of the population became vaccinated,” the real estate brokerage, mortgage brokerage, research and advisory services company noted.
In September, the National Investment Center for Seniors Housing & Care reported that independent living and assisted living absorption was in the green for the first time since June 2020. Driven by pent-up demand, in the second half of 2021, more than 30,000 senior housing units were absorbed.
“This was a very impressive rebound after roughly 44,000 units were relinquished on a net basis during the four quarters following the onset of the pandemic,” according to Marcus & Millichap.
This means that two-thirds of relinquished units were refilled in the second half of 2021 as occupancy rebounded. The pace of move-ins increased in some cases to pre-pandemic levels from the pent-up need, whereas the pace of move-outs remained stable.
Unfortunately, according to the authors, rates were not able to keep up with inflation. The 3.1% rent growth for senior housing overall was “largely offset by historic inflation and an increase in operating costs tied to wages and infrastructure upgrades for virus mitigation.”
Industry-wide and nationwide, companies are witnessing workforce shortages. Employment in assisted living and continuing care retirement communities (also known as life plan communities), as well as in skilled nursing facilities, each decreased by more than 10% from February 2020 to November 2021, according to the Bureau of Labor Statistics. Fewer workers means that some operators must limit admissions, which is hampering the pace of occupancy growth. To keep up with high turnover, companies have invested much money into recruitment and retention efforts, thus curbing revenue streams, according to Marcus & Millichap.
“While the headwinds directly related to COVID-19 have eased, the lingering labor deficit in the industry continues to plague operations,” the authors wrote.
There appears to be significant capital in senior housing now, because investors held back during the pandemic, according to the report.
“The large amount of capital built up during the pandemic translated to a rise in entity-level and portfolio deals in recent periods, potentially indicating an opportunity for private investors to acquire singular properties as institutions trim down portfolios; competition for stabilized communities is fierce, however, given the lack of assets that have recovered occupancy to 2019 levels,” Marcus and Millichap said.
Little by little, occupancy is rebounding, the authors noted.
“While third-quarter data from the National Investment Center [for Seniors Housing & Care] revealed an increase in senior housing occupancy to 80.1%, up from 78.7% in the second quarter, that rate is ‘still well below’ its pre-pandemic peak, researchers said,” LeadingAge President and CEO Katie Smith Sloan said in a January statement.
NIC President and CEO Brian Jurutka said in January that if record absorption continues on its current trajectory, then senior living occupancy could reach pre-pandemic levels by late 2023.