Senior housing occupancy has declined to its lowest level in eight years, while construction of the property type is showing signs of a slowdown, according to a new report by the National Investment Center for Seniors Housing & Care (NIC).
The overall occupancy rate for senior housing, a category that includes independent living and assisted living facilities, declined to 87.8 percent in the second quarter of 2019, down 10 basis points from 87.9 percent a year ago. Majority independent living facilities posted a 90.2 percent occupancy rate, while majority assisted living properties experienced 85.1 percent occupancy.
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Senior housing occupancy reached its most recent high of 90.2 percent in the fourth quarter of 2014. The latest occupancy figure marks the lowest level since the second quarter of 2011, after hovering at 88.1 percent in the first quarter.
Despite the relative decline, overall demand for senior housing remains strong as millions of Baby Boomers retire every year. Average rent for independent facilities grew 3.2 percent annually in the second quarter, while rent for assisted living grew 2.5 percent.
San Jose, Portland outperform
The data also shows large regional variation, as occupancy rates are influenced by local zoning, regulatory and demographic conditions, among other factors. Senior housing occupancy in San Antonio jumped from 78.5 percent to 82.9 year-on-year, while in Los Angeles, occupancy levels sank from 90.1 percent to 87.9 percent, according to NIC.
San Jose, Calif., and Portland, Ore., posted the highest occupancy rates in the second quarter at 95.7 percent and 91.6 percent, respectively. Las Vegas and Houston had the emptiest facilities, with occupancy levels 82.3 percent and 81.1 percent, respectively.
Construction activity appears to be cooling down. The 31 primary markets surveyed by the report saw 19,113 new senior housing construction starts in the last quarter, the lowest amount since 2014. These new starts equated to 3.0 percent of total existing inventory, down from 4.3 percent at the same time last year. The downward trend is especially pronounced with assisted living properties.
Senior housing drew more than $1.8 billion of transaction volume in the first quarter, with a price per unit of $172,539 and cap rate of 7.0 percent on a rolling four-quarter basis, according to NIC.