Demand for seniors housing may be overstated, white paper says

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Frank Rockwood
Frank Rockwood

Predictions related to future demand for seniors housing may be overstated, especially in slower-growing markets, because analysts are not focusing on the correct audience, according to a new white paper by real estate decision support and transaction services company Rockwood Pacific.

To forecast demand for seniors housing accurately, the senior living industry should look at those aged at least 80 years rather than those aged at least 75 years, Rockwood Pacific Principal Francesco “Frank” Rockwood told McKnight's Senior Living. That's what his company and affiliate Senior Housing Analytics did in their most recent demand estimates calculated for the American Seniors Housing Association, he said.

“The market is expected to grow more slowly through 2025 then you might be led to believe by looking at the world through the view of the 75+ population,” Rockwood said.

That's because older adults aren't moving into independent living, assisted living or memory care communities, or skilled nursing centers, until they are around 80 years old, the white paper noted, citing statistics from the Centers for Disease Control and Prevention, the Center for Retirement Research at Boston College and a previous study co-sponsored by several senior living industry associations.

Removing those aged 75 to 79 from the equation makes it appear as if 8 million fewer potential users of senior living exist — a 40% reduction, the white paper stated, but “to a large extent, these 8 million older adults were never customers.”

Nonetheless, Rockwood said, the industry is reluctant to change the way it calculates demand because, “whatever your role in the industry, the bigger the industry is, the better.”

When focusing on those aged at least 80 rather than those aged at least 75, Rockwood and his coauthors said, analysts will see a more modest yet strong population growth rate of older adults.

“But although growth is slower, I don't think we have a major problem in the industry,” he said, adding that because assisted living and memory care are mature segments, “we have good data on how these various markets are doing in those particular product categories. There are generally lots of buildings that offer those services, so we can look to occupancy rates and net growth rates, etc. We're not guessing how big the market is.”

But accurately calculating the expected growth rate will depend on the market, Rockwood said. Generally speaking, he advises applying a one-third discount to the growth rates when changing from the 75+ benchmark to the 80+ benchmark. In faster-growing states such as Arizona, however, the comparable discount would be 20%, and in states where growth is slower, such as Pennsylvania and Ohio, the discount would be closer to 50%.

The revised benchmarking would be useful especially to companies deciding whether to enter a state or a segment or those performing cross-market comparisons, Rockwood said.

“The industry in general is performing well. We just need to be a little bit more realistic and more sophisticated about how we gauge the growth from here going forward,” he said.

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