A Dive into Senior Housing Fundamentals

October 9, 2020

National Investment Center for Seniors Housing & Care’s Lana Peck examined senior housing fundamentals during a talk at the organization’s fall conference.

Lana Peck, Senior Principal, NIC

With some 75 million Baby Boomers living in the U.S. and around 3 million Americans turning 65 every year, as reported by the Department of Housing and Urban Development, the senior housing industry proves to be a solid investment option. COVID-19, however, has shaken the industry, weakened demand and pushed the sector into uncertainty for an indefinite time.

In the past couple of years, the average occupancy for senior housing has been mostly level, hovering around its recent average which was close to 88 percent. At the end of 2019 demand for senior housing was strong and most units were absorbed. The inventory was only slightly better than net absorption, thus the sector slipped into the pandemic with somewhat strong demand, according to Lana Peck, senior principal at the National Investment Center for Seniors Housing & Care (NIC). Peck examined senior housing fundamentals and provided insights from NIC’s Executive Survey at the NIC 2020 Fall Conference.

Fast forward to the pandemic, demand for senior housing fell by 15,000 units, which is the same as the absorption gains recorded in the fourth quarter of 2019. The average occupancy rate fell 2.8 percent in the second quarter of 2020, from 87.7 percent to 84.9 percent—the lowest level recorded since NIC started reporting occupancy data in 2005. “This drop in occupancy was directly related to the COVID-19 pandemic,” Peck stated.

Slide from NIC 2020 Fall Conference

Property types in senior housing, however, have not been evenly hit by the pandemic. As of the second quarter, there was a 5.3 percent difference in occupancy rate between independent living and assisted living—the two types of properties that make up senior housing. The occupancy rate for independent living was 87.1 percent whereas for assisted living occupancy dropped to 82.1 percent.

This is the largest gap recorded between the two care segments since the first quarter of 2019. Assisted living was impacted the most, with a 3.2 percent drop over the previous quarter. While, independent living saw a 2.4 percent decline, quarter-over-quarter, pushing the occupancy rate back to its post-financial crisis level back in 2011. The fall in the occupancy rate provoked by the pandemic over one quarter was almost the same as in the entire economic cycle in the 2008-2009 recession period when independent living occupancy dropped 5.6 percent and assisted living occupancy was down 3.7 percent.

The sudden drop in occupancy occurred in April, the decline then decelerated in each subsequent month of the second quarter. At the onset of the pandemic, NIC survey respondents reported that the drop in move-ins was mostly due to moratoriums and government-mandated restrictions and move-ins picked-up again in June, when restrictions began to ease.

According to NIC’s latest survey results, conducted between September 15 and September 27 the slow pace in move-ins can be attributed to resident or family member concerns instead of other restrictions put in place. In NIC’s latest survey some 61 percent of organizations indicated that they were easing move-in restrictions in some or all of their locations, up from around half of in the two latest surveys. However, the share of survey respondents offering rent concessions to draw residents to their properties has grown since late July and early August from approximately one-third to one-half.

NIC’s latest executive survey also reveals that senior housing organizations are under pressure because of rising operating costs, however, access to personal protective equipment and testing kits has significantly improved. Additionally, the time frame for receiving COVID-19 test result has also improved. Around 12.4 percent of organizations reported that test results arrive within two days. The majority (57 percent) still indicated that it takes more than three days to receive test results, however, this is down from the 87 percent recorded between July 20 and August 2.