2024 will mark the end of three years of occupancy recovery in senior living, and occupancy is expected to continue to improve over the next three years, the National Investment Center for Seniors Housing & Care projected in an inaugural report intended to deliver “actionable, data-informed insights” to capital providers, operators and developers. Challenges could emerge, however.
NIC Analytics launched the first installment of its new Senior Housing Analyst Review and OutlooK, or SHARK, report series on Thursday, focusing on demographic trends, construction activity, supply and demand, absorption-to-inventory growth velocity, occupied penetration rates, and occupancy in the 99 primary and secondary markets followed by NIC MAP Vision.
“Senior housing is on the cusp of a notable upswing, with occupancy expected to continue improving over the next three years, in some cases nearing maximum capacity by 2026,” NIC Principal Omar Zahraoui said in a blog post about the report. “Yet challenges may arise in meeting this surge, including aging inventory, potential supply shortfalls and lengthy construction timelines.”
The recent surge in demand for needs-based senior living — assisted living and memory care — suggests a “new normal” rather than pent-up demand, Zahraoui noted. Senior living occupancy is expected to grow 8% to 14% from 2023 to 2026 — two to three times the projected inventory growth rate.
“Robust” absorption-to-inventory growth velocity, or the AIV ratio, has been the driving force behind occupancy increases in 2022 and 2023, and expectations are that 2024 will mark the end of a three-year pandemic occupancy recovery in senior living market fundamentals, according to Zahraoui. Continued strong momentum in the AIV ratio over the next three years projects new occupancy records, with most regions achieving occupancy rates in the mid-90% range by 2026.
New construction is not keeping pace with population and demand growth, however, according to the report. The estimated number of households with members who are 80 or more years old is expected to grow by 1 million from 2023 to 2026 — a figure anticipated to double between 2026 and 2029, according to NIC Analytics data.
Although positive growth is being seen in the Mid-Atlantic region compared with 2019, Zahraoui said, the industry should focus more on efficiency developments to reduce costs and timelines.
Inventory is projected to increase by 4.1% from 2023 to 2026, which is only half to one-third of projected demand growth. This inventory shortfall will be compounded by aging buildings — 44% of senior living properties are 25 years or older — and prolonged construction timelines — 75% of new senior living properties take almost three years to develop from groundbreaking — which likely will drive trends toward repurposing buildings and increasing capital expenditures.
Zahraoui pondered whether senior living stakeholders will capitalize on those trends and proactively prepare for the future or whether they will adopt a passive wait-and-see approach. Sustained positive momentum in market performance metrics, he said, likely will spark a “fear of missing out” among investors.
