Report: Seniors Housing Occupancy Falls, Rents Rise in 4Q of 2009

Michael Hargrave

Annapolis, Md.–Occupancy rates fell for seniors housing in the last quarter of 2009, but the property type still enjoyed moderate rent growth, according to NIC MAP, a data and analysis service of the National Investment Center for the Seniors Housing & Care Industry (NIC).

The occupancy rate for seniors housing (both independent living and assisted living product types) dropped to 88.2 percent in the fourth quarter, from the previous quarter’s level of 88.5 percent. By comparison, the average occupancy rate during the fourth quarter of 2008 stood at 89.8 percent for independent living properties, or continuing care retirement communities with a majority of independent living units; it was 88.9 percent for assisted living properties.

The occupancy rate at seniors housing properties has likely reached a “choppy bottom,” Michael Hargrave, vice president at NIC MAP, tells MHN. The fourth quarter of last year was the third straight quarter of positive absorption, or sale of more units, in seniors housing. But occupancy rates have been challenged by the relatively large number of units being delivered, the result of the robust lending environment of a few years ago. But, the tight credit markets of today have greatly slowed construction activity. “The report finds that, for independent living facilities, trailing 12-month construction activity was just 0.5 percent of existing inventory in last year’s fourth quarter, while new construction starts for assisted living facilities were only slightly higher at 0.6 percent. While new senior housing deliveries will be substantial in the first quarter of this year, they fall after that,” Hargrave says.

While last year’s fourth quarter saw rent growth at senior housing properties rise by 1.6 percent, Hargrave says rent increase percentages have declined noticeably in recent quarters. He notes that in the fourth quarter of 2008, rents increased by nearly 3 percent, and in the fourth quarter of 2007, the level was just shy of 4 percent.

“Seniors housing facilities are fairly labor intensive operations, and if, as some economists predicts, inflation picks up later this year, landlords may find it difficult to increase rents significantly after keeping the hikes at moderate levels in recent years,” Hargrave says.

Occupancy at skilled nursing facilities continued their slow, steady decline. In last year’s fourth quarter, the occupancy rate was 88.7 percent. In the last quarter of 2008, it was 89.4 percent. The sector had the least amount of construction activity of any seniors housing property type in the quarter. The amount of construction did not keep pace with the number of beds taken out of service, which was 1,291, in the top 31 metro areas.