Occupancies Down For Seniors Housing, But Not For Long

Annapolis, Md.—Occupancy rates for seniors housing fell in the first quarter of 2010, while rent growth continued during the same period, albeit at a slower pace than in the previous two years, according to a new report by the National Investment Center for the Seniors Housing & Care Industry (NIC). But that situation, at least regarding lower occupancies, probably won’t last, since declining construction starts also means that the seniors housing inventory pipeline is considerably smaller than it used to be.

For independent living and assisted living properties considered as a whole, notes NIC, the average occupancy rate fell to 88 percent during 1Q10, down from 88.3 percent in 4Q09. Specifically, the average occupancy rate during the first quarter for independent living properties was 87.9 percent and for assisted living properties was 88.1 percent. Average occupancy during 4Q09 was 88.2 percent for independent living properties and 88.4 percent for assisted living properties.

The slide in occupancies is a function of supply outpacing demand for now, Robert Kramer, president of NIC, tells MHN. “The amount of supply coming on line has been greater than the demand growth in recent months,” he says. “But that is probably going to change.”

In particular, Kramer says, the supply growth in assisted living is going to be dropping off dramatically after the second quarter of this year. “That will also be true of independent living after the third quarter,” he adds. “So the pressure coming from new supply from both segments will lessen significantly, which will help occupancy rates going forward.”

The emptying of the pipeline has already started, since many fewer projects are getting financed these days. For independent living, trailing-twelve month construction activity was 0.8 percent of existing inventory in 1Q10, compared to 1.4 percent a year ago, according to the NIC report. Such construction activity was 0.8 percent in 1Q10 for assisted living, compared to 1.2 percent in 1Q09.

The first quarter of 2010 also showed positive rent growth for seniors housing, though not nearly as much as in recent years.  For seniors housing properties as a whole, year-over-year rent growth in the first quarter of 2010 was 1.5 percent, which is slower than the pace a year ago (2.6 percent) and two years ago (3.7 percent).

The average monthly rent (AMR) per unit for independent living was $2,701 during 1Q10, which is up 1.5 percent on a year-over-year basis. For assisted living, the AMR was $3,528 in 1Q10, up 1.4 percent on a year-over-year basis.