Senior Housing Occupancy Keeps Rising. What’s Next?
NIC's Caroline Clapp breaks down the factors that will be fueling growth in the sector.
Over the past few years, senior housing occupancy only increased. Rates improved by a notable 0.7 percentage points in the last quarter of 2024 over the previous one, continuing a trend that began in 2021, according to a recent report from the National Investment Center for Seniors Housing & Care.
This growth has been primarily driven by rising demand fueled by an aging population and limited new supply as construction activity is near historic lows. What does this mean for the senior housing sector in the long run?
In a recent conversation, Caroline Clapp, a senior principal at NIC—where she serves as a subject matter expert and supports outreach for senior housing—told Multi-Housing News that although there are regional market variations, the long-term forecast for the sector will remain positive.
What specific factors do you believe contributed to the most recent bump in senior housing occupancy rates?
Clapp: Occupancy increases were driven by another year of robust demand, as 2024 net absorption was roughly in line with 2022 and 2023 levels, which were also above historical averages. Meanwhile, on the supply side, inventory growth in 2024 was slightly higher than 2023 but overall remained low and near levels last seen in 2014. These supply and demand trends have supported a relatively steady increase in occupancy rates over the past 3.5 years.
Average occupancy rates are expected to surpass 90 percent by the end of 2026. What assumptions are central to this forecast, and how might changes in economic or demographic trends affect it?
Clapp: The Census Bureau projects that from 2023 to 2026 an estimated 1 million additional 80+ households will emerge and this figure is expected to double to 2 million in the subsequent three years—2026 to 2029.
On the demand side, a significant change in demographic trends could affect the occupancy rate forecast, but it would require a large revision in projections. Economically, regarding staffing senior housing communities, a labor shortage could impact occupancies to the extent it causes senior housing communities to decline new residents.
On the supply side, the average number of months from the time a new senior housing community breaks ground until it opens its doors is 29 months. Given the historically low number of units under construction currently, coupled with the strong demand that we have consistently seen, it would be difficult to deliver a number of units significant enough to impact the occupancy rate forecast.
Your latest report shows that occupancy rates vary significantly across markets, from Boston’s 91 percent to Las Vegas’s 82.9 percent. What key market dynamics or regional characteristics are driving these disparities?
Clapp: The occupancy rate spread narrowed from 11 percentage points in the fourth quarter of 2022 to roughly 8 percentage points in the fourth quarter of 2024 as some of the lower-occupied markets made gains. Limited new supply in some of the lower barrier-to-entry markets such as Las Vegas, Houston and Atlanta allowed demand to absorb vacant units rather than going to new competitors.
Anecdotally, we have heard from some operators that markets recently hit by hurricanes in 2024, such as Tampa and Miami, saw increased interest in moving into senior housing communities, which are equipped with generators and other emergency measures.
Boston, Baltimore and Tampa are leading in occupancy rates, while Atlanta, Houston and Las Vegas lag. Tell us more about what’s behind the gap between these markets.
Clapp: Similar to other property types, occupancy rates can be depressed by new supply that outweighs demand, and new supply is typically easier to develop in lower barrier-to-entry markets such as Atlanta, Houston and Las Vegas.
Additionally, senior housing may be a better understood and better accepted product in some markets, such as Boston and Baltimore, which have penetration rates of roughly 11 percent. Conversely, Las Vegas has a penetration rate of less than 5 percent, indicating that senior housing properties’ occupancy rates may benefit from tapping into older adult households via consumer education and product customization.
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With construction activity at its lowest since 2014, are there any alternative housing models or retrofitting strategies that could supplement new construction efforts to meet rising demand?
Clapp: Active adult rental communities are garnering interest among younger Baby Boomers who are ready to downsize from their current homes but do not yet need the care services provided in traditional senior housing. For older adults who do need traditional care services or help with laundry, transportation and meals, an increase in middle-market senior housing options for middle-income seniors would help to meet rising demand.
Some not-for-profit developers are relying on alternative construction financing sources such as tax-exempt bonds or philanthropic funds to create middle-market senior housing communities, while some for-profit investors are acquiring older properties at a low basis and repurposing them for the middle market.
How do you anticipate the increasing aging population to affect demand for specialized care versus independent living units in the next decade?
Clapp: Demand for assisted living is typically needs-driven, while demand for independent living can be more choice-based and may be impacted by the ability to sell one’s current home. In 2024, occupancy rates for both assisted living and independent living increased by more than 2 percentage points, indicating comparable demand trends for both property types.
We also know that with the aging population and the rising incidence of Alzheimer’s and dementia-related illnesses, there will be increased needs for supportive living environments for those facing cognitive impairment. Looking ahead, operators who best illustrate to prospective residents the value proposition of senior housing—shelter, security, socialization, meals, transportation, services, wellness—and customize their offerings to Baby Boomers’ wants and needs should continue to benefit from demand for both specialized care and independent living.
How are you working with stakeholders to address the supply-demand imbalance in senior housing?
Clapp: NIC recognizes that construction will need to ramp up to meet the needs of older adults, so we are actively convening thousands of investors, lenders, owners, developers and operators at our NIC conferences and at other stakeholder meetings throughout the year. We hold webinars for investors and lenders that are focused on the investment and credit outlook for senior housing. We have created an Investment Thesis for Senior Housing presentation for stakeholders to utilize in their conversations with current and prospective capital providers.
We share data regarding the inventory shortage expected in the coming years as Baby Boomers age into the 80+ population. We feature case studies on organizations that are successfully developing new communities via alternative sources such as public or philanthropic funding. Capital formation with new audiences is a significant focus of ours, whether it be speaking to or educating family offices, private equity investors or pension fund advisors.
What other key trends should senior housing investors and operators keep an eye on this year?
Clapp: Overall, the outlook for the senior housing and care sector in 2025 is positive. Strong demographic growth, robust demand and limited new supply are expected to boost operational and financial performance. Bank lending improved in 2024, and we anticipate that the debt markets will continue to migrate back to senior housing in 2025. Transaction activity is anticipated to be robust in 2025, building on the increased momentum seen in 2024.
For operators, increasing adoption of technology appears to be on the horizon for 2025. Today’s seniors and their families expect more than a place to live. They seek a property where they can thrive physically, emotionally and socially. Achieving this potential requires balancing affordability with quality, while transitioning from the traditional one-size-fits-all model to more personalized offerings that cater to the diverse needs and preferences of the Baby Boomer generation—one of the largest and most diverse cohorts.
