The occupancy rate for senior housing (independent living and assisted living) across the United States in the first quarter of 2019 increased 0.1 percentage point from the previous quarter, to 88.1%, according to data released Thursday by the National Investment Center for Seniors Housing & Care.
“That’s up 20 basis points from the third quarter [of 2018], so at least that’s moving in the right direction,” NIC Chief Economist Beth Burnham Mace told McKnight’s Senior Living. “And the [construction] start data seem to be indicating that there is a slowdown in starts, especially for assisted living. So that should translate ultimately into slower inventory growth.”
Senior housing construction starts during the first quarter of 2019 in the 31 primary markets that NIC follows totaled 4,003 units, including 2,236 independent living units and 1,767 assisted living units. Preliminary data on construction as a share of existing inventory for senior housing was 6.7% in the first quarter of 2019, 0.8 percentage point below its recent high of 7.5% in the fourth quarter of 2017.
“Provided the economy doesn’t slip into a recession, and if demand stays the same, then the slowdown in inventory growth should start to translate into a continuation of improvement in occupancy,” Mace said.
Differences by market
Although senior housing occupancy was stable overall nationally, it continued to vary among the 31 primary markets. Occupancy ranged from a low of approximately 77% in Houston (77.1%) and San Antonio (77.4%) to a high of more than 92% in San Diego (92.2%) and San Jose, CA (94.1%).
“The seventeen percentage point spread in occupancy across these major U.S. markets is exceptionally wide when compared to other commercial property types,” said Chuck Harry, NIC’s head of research and analytics.
Supply in markets can differ due to the cost of development, barriers to entry, how difficult it is to get land entitled and regulatory restrictions, whereas demand is a function of local demographics as well as the overall performance of the local economy, Mace said.
Assisted living versus independent living
Assisted living occupancy averaged 85.5% during the first quarter, up only 30 basis points from the all-time low of 85.2% reached in the second quarter of 2018. It was also up 0.1 percentage point from the fourth quarter but declined 0.2 percentage point from a year ago.
“That’s sort of a hangover effect from after the recession, because there was more capital and more development put into assisted living,” Mace said of challenges in the sector.
Independent living occupancy averaged 90.4% during the first quarter, up 0.1 percentage point from the previous quarter and unchanged from a year ago.
“Assisted living is a little bit more recession-proof, so after the great recession, people invested more money in that and less so into independent living, because it is viewed more as choice-based,” Mace said.
A little surprise
The chief economist said she was “a little surprised” that, overall, demand was stronger than inventory, based on unit count, for the second quarter in a row. “I view that as good, and that contributed to the increase in occupancy, albeit by little bit,” she said.
The absorption rate was 3% as of the first quarter of 2019, up 0.3 percentage points from the fourth quarter of 2018 and up 0.7 percentage points from one year earlier. The annual inventory growth rate in the first quarter of 2019 was slightly higher than the absorption rate, at 3.1%, declining 0.4 percentage points from the fourth quarter.
The average rate of senior housing’s annual asking rent growth was 3% during the first quarter of 2019, unchanged from the previous quarter and down from a recent high of 3.8% in the fourth quarter of 2016.