Senior living has a positive story to tell going into a new year, with occupied units at an all-time high and record demand, according to the latest quarterly data from the National Investment Center for Seniors Housing & Care.
The NIC MAP Market Fundamentals Data report for the fourth quarter of 2022, released this afternoon, shows that occupancy rate across all three senior living service/care segments — independent living, assisted living and memory care — increased for the sixth consecutive quarter due to continued strong demand that outpaced inventory growth. The highest occupancy gains were seen in assisted living.
And although the record level of demand driven by the nation’s demographic tailwinds continued to be the story, the industry still faces challenges and has room for improvement to get back to pre-pandemic occupancy levels, according to Caroline Clapp, NIC senior principal.
The senior living occupancy rate increased 0.9 percentage points from the third quarter to the fourth quarter, going from 82.1% to 83%, up 5.2 percentage points from a pandemic low of 77.8% in the second quarter of 2021.
Third-quarter 2022 data also revealed that growth in asking rates remained high on a year-over-year basis for all three segments, showing a sixth consecutive quarter of occupancy rate increases that outpaced inventory growth.
Assisted living had the largest quarterly occupancy gain — 1.1 percentage point to 80.7%, up 6.8 percentage points from a pandemic low of 73.9% in the second quarter 2021 — and the highest level of occupied units ever.
Independent living occupancy increased 0.6 percentage point to 85.2% — up 3.6 percentage point from a pandemic low of 81.6% in the second quarter 2021.
But Clapp told McKnight’s Senior Living that occupancy challenges remain, as the sector has yet to reach pre-pandemic levels due to new inventory added during the pandemic. Assisted living pre-pandemic occupancy was 84.6%, whereas independent living pre-pandemic occupancy was 89.6%.
Approximately 3,300 senior housing units were added within the 31 NIC MAP primary markets during the third quarter, and more than 8,600 units were absorbed on a net basis. Robust demand, according to Beth Burnham Mace, NIC chief economist, led to a new record high number of occupied units — within the NIC MAP primary markets, the total number of occupied units exceeded 574,900, surpassing a pre-pandemic first quarter 2020 level by nearly 7,000.
The trend of high demand and slow inventory growth remained consistent throughout 2022. Fewer than 11,000 units were added within the NIC MAP primary markets, the weakest inventory growth since 2014, NIC said. Combined with robust demand, occupancy rates increased 2.8 percentage points during the year.
“Development activity slowed sharply in the second half of 2022 as the rise in interest rates and a more stringent lending environment slowed loan issuance,” Mace said in a statement. “With higher interest rates expected in the early months of 2023, slower development pipelines are likely to continue, which could continue to impact inventory growth and therefore positively affect occupancy rates.”
Clapp said that assisted living occupancy recovery is stronger than independent living but was weaker going into the pandemic due to more new supply that began in the decade beginning in 2010. What is interesting, she said, is that the occupancy gap between independent living and assisted living grew during the pandemic to more than 7 percentage points. Now, because assisted living has had a stronger recovery than independent living, that gap is only 4 percentage points. She attributed that change to the resiliency of the needs-based product of assisted living.
“More older adults than ever before are now residents in senior housing properties, which speaks to the tremendous need for senior housing and care services,” Chuck Harry, NIC chief operating officer, said in a statement. “The demand from aging adults seeking senior housing and care is on the rise, and the industry continues to meet that need.”
Other challenges that still face senior living operators include staffing shortages and wage growth, although Clapp said that those challenges have eased a bit and are less severe than they were in 2020.
Asking rate growth, move-ins remain high
Asking rental rates for senior living also saw the largest increase since 2006 in the fourth quarter, increasing 4.9% on a year-over-year basis.
According to recent data from the third quarter NIC MAP Vision Actual Rates Report, memory care initial rental rates were up by 10.2% from 2021 levels, the largest increase since April 2022. Independent living saw its year-over-year asking rate growth rise to 9.9% in September.
Since March 2021, the pace of move-ins exceeded move-outs for all three categories.
The memory care segment saw the highest pace of move-ins across all three service/care segments in the third quarter, at 3.6% of inventory, on average, which was down from a record high of 4.6% of inventory in March 2021.
Independent living had the weakest level of move-ins, at 2.3% of inventory, in the third quarter. A move-out rate of 2.1% of inventory supported occupancy gains, however, NIC said.