NIC: Demand for independent living strong in third quarter

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The third quarter saw the highest known number of independent units absorbed on a net basis in one quarter, the weakest pace of seniors housing construction starts on a four-quarter basis since the fourth quarter of 2014, and the fastest growth rate for seniors housing asking rents since 2007, according to data released Wednesday by the National Investment Center for Seniors Housing & Care's MAP Data Service.

Independent living experienced much activity over the past three months, for now quelling the fears of potential short-term trouble for the property type that NIC had expressed after the second quarter.

The occupancy rate for independent living properties averaged 91.1% during the quarter, up 0.2 percentage points compared with the previous quarter, although unchanged from year-earlier levels and down 0.2 percentage point from the property type's seven-year high of 91.3% in the fourth quarter of 2015. Construction starts included 1,525 independent living units. The quarter also brought a healthy asking rent growth rate to independent living (more on that later).

“It was a very active quarter for independent living,” said Beth Burnham Mace, chief economist for NIC. “Nearly 2,500 units were absorbed on a net basis, the most in a single quarter since NIC's data collection began in 2006. Inventory grew at a lesser 2,158 units and below the record pace of 3,268 units in early 2008. As a result, occupancy improved to 91.1%.”

In assisted living, the occupancy rate averaged 88% during the third quarter, a rate unchanged from the second quarter and down 0.2 percentage points from year-earlier levels. Inventory growth exceeded absorption for the fourth consecutive quarter, causing occupancy to fall from year-earlier levels. Construction starts included 2,643 assisted living units.

Overall performance for all types of seniors housing properties in the third quarter:

  • Occupancy averaged 89.8% as absorption of units outpaced net additions in inventory. This rate represented an increase of 0.1 percentage point from the previous quarter and was down 0.1 percentage point from year-earlier levels. During the past three years, overall seniors housing occupancy has averaged 89.8%. As of the third quarter, occupancy was 2.9 percentage points above its cyclical low of 86.9% during the first quarter of 2010 and 0.5 percentage points below its most recent high of 90.3% in the fourth quarter of 2014.
  • Annual absorption was 2.5%, compared with 2.4% during the second quarter and 2% one year earlier during the third quarter of 2015.
  • Annual inventory growth rate was 2.6%, up 0.2 percentage points from the previous quarter.
  • Current construction as a share of existing inventory slowed 0.2 percentage points, from its recent high of 6% to 5.8% as of the third quarter, although it is still up 0.1 percentage points from the third quarter of 2015. Seniors housing construction starts during the third quarter of 2016 preliminarily totaled 4,168 units. On a four-quarter basis, starts totaled 17,522 units, the weakest pace since the fourth quarter of 2014.
  • Annual asking rent growth averaged 3.8%, which was 0.6 percentage points above the previous quarter's pace and 1.3 percentage points above its pace one year earlier during the third quarter of 2015.

“This was the fastest growth rate for asking rents since 2007— nearly 10 years ago,” said Chuck Harry, NIC's chief of research and analytics. “From year-earlier levels, growth was fastest for independent living properties, whose asking rents increased by 4.2% compared to the 3.2% gain seen in assisted living properties.”

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