Inventory growth knocks assisted living occupancy to lowest point since 2009

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Chuck Harry
Chuck Harry

Occupancy rates for assisted living communities reached their lowest point in eight years in the second quarter, driven down by inventory growth that outpaced healthy absorption rates, according to data released Wednesday by the National Investment Center for Seniors Housing & Care's MAP Data Service.

Assisted living occupancy averaged 86.5% during the second quarter, down 0.7 percentage points from the first quarter and 1.4 percentage points from year-earlier levels. The level was equal to the low point reached in the data series in the second quarter of 2009, NIC said.

This follows a first-quarter 2017 assisted living occupancy level that was reportedly at its lowest level since early 2010.

As of the second quarter of 2017, occupancy was 1.9 percentage points above its cyclical low of 86.9% during the first quarter of 2010 and 1.4 percentage points below its most recent high of 90.2% in the fourth quarter of 2014.

Inventory growth also affected independent living occupancy, which averaged 90.6% during the second quarter, down 0.3 percentage points from the previous quarter and 0.4 percentage points from year-earlier levels.

“The softening of occupancies for both assisted living and independent living is the result of their inventory growth, or unit completions, surpassing their relatively healthy annual rates of absorption of units, including the record pace of absorption for assisted living,” Chuck Harry, NIC's chief of research and analytics, said in a statement. “The record rate of annual absorption for assisted living properties of 4.3% still fell well short of its record annual inventory growth of 5.9%. For independent living properties, those annual rates, respectively, were 2% and 2.5%.”

Overall, the occupancy rate for seniors housing properties in the second quarter averaged 88.8%, as net additions to inventory outpaced absorption of units. This rate represented decreases of 0.5 percentage points from the previous quarter and 0.9 percentage points from year-earlier levels.

Other statistics for the second quarter of 2017:

Absorption. Seniors housing annual absorption was 3% as of the first quarter of 2017, up 0.2 percentage point from the first quarter of 2017, up 0.6 percentage point from one year earlier and at its fastest pace since NIC began reporting the data in 2006.

The seniors housing annual inventory growth rate in the second quarter of 2017 was 3.9%, up 0.5 percentage points from the previous quarter and also its fastest pace since NIC began reporting the data in 2006.

“Annual growth in inventory was high for both assisted living and independent living properties. It reflects the strong level of starts that we saw in 2015,” said Beth Burnham Mace, chief economist for NIC. “It often takes six to eight quarters for a project to move from groundbreaking to completion, so activity that was started in 2015 is showing up now in inventory growth. Starts have been trending lower since 2015, so we should see some slowdown in completions in the coming quarters.”

Construction. Current construction as a share of existing inventory for seniors housing preliminary slowed 0.3 percentage points from the previous quarter to 5.8% and was 0.8 percentage points below its recent high of 6.6% in the third quarter of 2016.

Seniors housing construction starts within the 31 primary markets measured by NIC during the second quarter preliminarily totaled 4,172 units, which included 2,275 assisted living units and 1,897 independent living units.

On a preliminary, four-quarter basis, starts totaled 18,324 units. Construction starts data often are revised retrospectively in subsequent quarters as additional information becomes available, NIC said.

Asking rent growth. The average rate of seniors housing's annual asking rent growth was 3.4% during the second quarter, unchanged from the previous quarter and up from 3.2% in the second quarter of 2016.

For comparison purposes, expense growth as measured by the annual change in assisted living average hourly earnings was 4.2% in the first quarter, according to the Bureau of Labor Statistics.

Nursing care. The occupancy rate for nursing care properties fell to 86.5% in the second quarter, down 0.7% from the first quarter. Annual inventory growth rate was up, annual absorption was down, and construction versus inventory held steady.

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