Bottom Well Within Reach for Seniors Housing Market

Annapolis, Md.–The seniors housing market managed to keep its head just above water during the economic crisis, but it did not completely escape the accompanying ramifications. However, having flirted with a rebound over the last several months, the forecast for the market is very bright, according to National Investment Center for the Seniors Housing & Care Industry’s (NIC) second quarter NIC MAP Data and Analysis Service.

“Seniors housing fared well during the recession compared to other commercial real estate sectors,” Robert Kramer, NIC president, tells MHN. “Occupancy losses have been muted in comparison to sectors like office, retail and hotel, and it has maintained positive rent growth throughout the economic downturn–and that’s something you don’t see in other sectors. Without a doubt, the recession had an impact, but seniors housing is a more need-driven product. People may postpone a move to seniors housing, but the decision becomes more pressing as the need intensifies and whatever temporary solution that is in place becomes less tenable.”

When lumped together, the second quarter occupancy rates for the sub-sectors of seniors housing were a bit of a mixed bag, nevertheless they indicate that the worst is over. From the first quarter to the second quarter of 2010, the average occupancy rate for assisted living communities increased from 87.8 percent to 88.3 percent. For independent living communities, the occupancy rate dropped just a tad, going from 87.5 percent in the first quarter to 87.4 in the second quarter; however, that drop marked a decline of only 0.6 percentage points over the last year, compared to a decline of 1.85 percentage points during the previous year. The skilled nursing sub-sector occupancy rate experienced an infinitesimal decrease, too, going from 88.9 percent in the first quarter to 88.6 percent in the second quarter.

As for rent growth in the seniors housing sector, NIC MAP illustrates that, while growth slowed year-over-year, the numbers remained positive. From the second quarter of 2009 to the second quarter of 2010, the average rent growth was 0.7 percent for independent living and assisted living, compared to a growth rate of 1.5 percent from the first quarter of 2009 to the first quarter of 2010. Rent growth at skilled nursing facilities, however, continued its ascent, with (AMR) climbing from $7,734 in the second quarter of 2009 to $7,979 in the second quarter of 2010.

The second quarter of 2010 yielded a rise in seniors housing construction starts as well. In both the independent living and assisted living sub-sectors, trailing twelve-month (TTM) construction activity increased from 0.9 percent of existing inventory in the first quarter of this year to 1.1 percent in the second quarter. Year-over-year TTM construction activity remained flat at 0.3 percent for skilled nursing properties.

“For the last couple of quarters, seniors housing has been bouncing along the bottom, but we don’t look for a V-shaped recovery,” Kramer says. “What’s encouraging is effective demand has rebounded in a V-shaped recovery, but what offsets that is new product coming online. Seniors housing will probably continue to bounce along the bottom for the next couple of quarters, and then there will be a slow growth period.”