Beth Burnham Mace headshot
Beth Burnham Mace

Independent living and assisted living communities saw their largest occupancy drops on record in the third quarter of 2020, according to data released Thursday by the National Investment Center for Seniors Housing & Care’s NIC MAP Data Service.

NIC Chief Economist Beth Burnham Mace described the declines as “steep” and “significant” and said they reflected “the apparent impact of the coronavirus.” She noted, however, that the pandemic may contain a “silver lining” for the industry.

Independent living occupancy fell 2.4 percentage points to 84.9% in the quarter, the lowest rate since NIC began recording the data in 2005, Mace said.

“That’s the second quarter in a row of quite significant occupancy declines,” she told McKnight’s Senior Living, noting that the third-quarter drop comes on the heels of a 2.5 percentage point decline in the preceding quarter.

Assisted living occupancy fell 2.9 percentage points to 79.1%, “and that followed on the heels of a 3.2 percentage point decline in the second quarter to 82%,” Mace said. Anecdotally, she added, assisted living occupancy appears to have been affected more by COVID-19 because the resident population has higher-level needs and generally is more frail.

Independent living communities posted the largest increase in inventory since early 2009 in the third quarter — approximately 3,000 units — but the numbers are a reflection of the “robust lending and development environment” of 18 to 24 months ago, NIC Chief Operating Officer Chuck Harry said in a news release. “Construction starts activity in the third quarter continued to be relatively weak, reflecting today’s more constrained capital markets,” he added.

In fact, Mace said that the third quarter saw only 551 independent living units started, the lowest level since 2011. “Just for perspective, in the year 2019, starts averaged 2,800 units a quarter,” and 2019 saw 11,000 units started, she added.

“What that’s reflecting is the lack of capital availability now, seven months into the pandemic,” Mace said. “We know for sure that lenders are being more careful in terms of their lending, and we know deals aren’t really happening right now, especially the construction deals, given the uncertainty.”

Largest drop in occupancy on record

Overall, the senior housing sector — independent living and assisted living combined — is experiencing its largest drop in occupancy on record, according to NIC. 

Senior housing occupancy fell 2.6 percentage points to 82.1% in the third quarter, from 84.7% in the second quarter, indicating a steady decline since the pandemic began, according to the NIC MAP Data Service. It’s the second consecutive quarter in which occupancy fell more than 2.5 percentage points.

Occupancy in the quarter varied by location, Mace said, but markets where supply issues were a factor before the pandemic, such as Atlanta, have been more affected during it, whereas markets with fewer pre-pandemic supply issues, such as San Jose, CA, have not been.

The pandemic’s ‘silver lining’

But in the midst of so much bad news related to the pandemic, there could be “a silver lining,” she said.

“If you figure a start takes 18 months to two years to turn into a building that can open, the weak starts activity in both AL and IL suggests that that supply challenge that we’ve seen will start to certainly dissipate as we go into 2021 and 2022,” assuming that the country is not in crisis due to the virus by that point, Mace said. “Some of those low occupancy rates of today will benefit from the slow-down in construction starts presently and should benefit from pent-up demand and greater demand projections.”

She said operators have described that pent-up demand in terms of current waiting lists for assisted living communities.

“There’s a lot of the services that you receive in assisted living that you can’t necessarily receive as well potentially at home, or you don’t have the skill set or your family members can’t provide those services to you,” Mace said. “So I think that there is some pent-up demand for the need-based segments of seniors housing.”

For now, as the pandemic continues, the industry is in a better position to battle it, she said.

“The ‘new normal’ is still emerging, but in the current normal, we better understand the virus. We understand that it’s airborne; we understand safety protocols that need to be put in place; we have better access to PPE, better access to testing, and better guidelines about how to work with people coming into properties — staff or delivery people or family members,” Mace said. “So we’re in a much better position today to understand how to combat it. We have more tools in our arsenal in terms of being able to fight it.”

Looking ahead, the life of the pandemic and the timing of the availability of a vaccine will help determine the future success of the industry, she said.

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