The latest NIC MAP quarterly data, released Thursday, provide reasons to be “cautiously optimistic” about the senior living industry’s comeback from the pandemic, National Investment Center for Seniors Housing & Care Chief Economist Beth Burnham Mace told McKnight’s Senior Living.

A significant rebound in demand, combined with a modest increase in supply, contributed to a 1.4 percentage point increase in senior housing (independent living and assisted living combined) occupancy in the third quarter.

Occupancy inched up to 80.1% from a pandemic-related low of 78.7% in the second quarter. Measured separately, assisted living occupancy increased to 76.9%, up from a pandemic low of 75.4% in the first quarter. And in independent living, occupancy increased to 83.2%, up from a pandemic low of 81.8% in the first quarter.

“It’s not to say that we’re out of the woods, because we’re still down below the pre-pandemic levels,” Mace said, “but we’re certainly moving in the right direction.”

Assisted living occupancy in the third quarter remained below the sector’s pre-pandemic level of 85%, and independent living occupancy was lower than its pre-pandemic level of 89.7%, according to the data.

Senior living demand increased by 12,318 units in the primary markets tracked by NIC MAP Vision. This increase was the strongest unit increase since NIC MAP began reporting the data in 2005, the organization said.

“The demand numbers were really powerful,” Mace said, adding that the numbers “suggest, in fact, that there was pent up demand for both assisted living and independent living.” Time will tell whether demand continues to increase in the fourth quarter, she said.

At the same time, inventory increased by 3,441 units in the third quarter, the smallest unit count increase since the first quarter of 2019. Also, the number of units under construction represented the fewest since 2015.

“The [construction] starts numbers are still pretty moderate compared to the pace that we’ve seen in the past,” Mace said. “That suggests that there will be a window … coming up where we’ll see a little bit slower inventory growth. If you get that along with a pick-up in demand, that’s good for future occupancy performance.”

Not a seller’s market

For now, however, the 80% occupancy rate means that one in five senior living units are open, she pointed out. “And the rent growth in the third quarter was about 1.5%. That’s suggesting that it’s not a seller’s market, so to speak; the consumer still has choice, so operators won’t be able to increase rates that much.”

The challenge to operators’ margins comes at a time when expenses are increasing and there is upward pressure on wages due to lack of staff, as well as pressures due to insurance costs, Mace said.

But NIC’s surveys of executives have shown that the effects of the delta variant in senior living are waning, she said. “That speaks to the fact that a lot of the residents are vaccinated. A good portion of the staff is vaccinated, and some operators are mandating the vaccine,” Mace said.

Also, she said, providers have learned several lessons over the past 18 months, including lessons related to infection control, which could help attract prospective residents.

“Most operators are pretty well-positioned to prevent further infection in their own properties. I think that that suggests that you’re going to see continued confidence of seniors wanting to move in and family members — importantly, family members — having confidence that they’ll be able to move in,” Mace said. “While I wouldn’t go so far to say that it’s the safest place you can be if you’re older, it’s certainly a safer place than it was a year ago or 18 months ago. And I think that would suggest positive strength for demand.”

Other factors in place that usually support demand for senior living, such as strong stock and housing markets and an improving economy, provide even more reasons for optimism, she said.

Biggest limiting factor: labor

The biggest limiting factor to improvement is operators’ inability to hire or retain staff, Mace said, noting that the labor challenges are not unique to the senior living industry. “I know that some operators now are being forced to not bring in new residents because they don’t have their appropriate staff,” she said.

Some workers may find it difficult to work due to pandemic-related child care or schooling complications, whereas others still may be nervous about COVID-19 and still others may be searching for higher pay, Mace said.

To combat workforce issues, she said, an increasing number of companies are focusing on staff member retention through programs meant to foster loyalty, such as scholarships, career development and training, and flexible scheduling.

“It’s easier to retain your staff than having to go out and get new staff,” Mace said. “I think all of those types of strategies might be effective. People who work in senior housing are there because — they’re really hard jobs, but they’re really rewarding jobs, because they’re helping people.”

‘2023 and beyond’ for return to pre-pandemic occupancy

When occupancy will return to pre-pandemic levels will vary by market and operator, Mace said, adding that it could take two to six years based on analyses she has performed.

“I am not of the school that you’re going to get occupancy back, on average, sometime in 2022. I think that’s overly optimistic, given how far down we still are,” she said, adding that it is her opinion that occupancy will return to pre-pandemic levels in “2023 and beyond.”

But occupancy at some best-in-class operators never has fallen below 95% during the pandemic, and others that saw drops are back to pre-pandemic levels, she noted. 

Of the 31 metropolitan markets that encompass NIC MAP’s primary markets, the highest senior housing occupancy rates in the third quarter were seen in San Jose, CA (85.9%), San Francisco (84.5%) and Portland, OR (84.3%). The markets with the lowest occupancy rates were Houston (74.8%), Cleveland (75.5%) and Atlanta (75.8%).

“Atlanta tends to have strong demand, but they also have really ambitious developers, and so the demand can never catch up to itself,” Mace said.

Regardless of location, long-term demand-drivers such as demographics are positive, she said.

“We don’t quite have the baby boomers here yet, but we’re past that low birth point in the 1930s,” Mace said. “And the caregiver support ratio, the number of adult children to care for someone who’s over 80, is diminishing as well. The fundamentals are in place to have stronger demand for congregate settings … so the industry has to make sure that its value proposition is understood by residents as well as their adult children.”