NIC: Occupancy Falls to Four-Year Low as New Inventory Exceeds Demand

Source: National Investment Center for Seniors Housing & Care (NIC) Source: National Investment Center for Seniors Housing & Care (NIC)

ANNAPOLIS, Md. — The occupancy rate for seniors housing properties in the first quarter of 2017 averaged 89.3 percent, the lowest point since mid-2013, according to the National Investment Center for Seniors Housing & Care (NIC).

Based in Annapolis, NIC is a nonprofit organization that tracks and analyzes data on the seniors housing industry. The company’s data comes from tracking 31 primary markets throughout the United States.

The first-quarter occupancy rate represents a 30 basis-point reduction from the previous quarter and 60 basis-point reduction from one year prior. The rate is still 2.4 percentage points higher than the cyclical low of 86.9 percent, which occurred during the first quarter of 2010. It is 90 basis points lower than its recent high of 90.2 percent in the fourth quarter of 2014.

Assisted living took a particularly hard hit, falling a full percentage point from one year earlier to 87.2 percent. This is the lowest occupancy rate for assisted living since early 2010, when it hit 86.9 percent. Independent living is faring better, with an average occupancy of 90.9 percent.

“It was another active quarter for inventory growth, with nearly 4,800 units added to the seniors housing stock in NIC MAP’s 31 Primary Markets,” says Beth Burnham Mace, chief economist for NIC. “At the same time, demand slowed during the quarter, as is typically the case in the first quarter due to the seasonal effects of the winter months.”

Absorption was positive during the first quarter — 2.8 percent, a 10 basis-point improvement over the previous quarter — but it was not enough to take on the new units being delivered. Seniors housing grew 3.4 percent during the quarter, the fastest pace of growth since “at least 2006,” according to NIC.

Seniors housing construction starts during the first quarter of 2017 preliminarily totaled 2,845 units, which includes 1,388 independent living units and 1,457 assisted living units. On a preliminary four-quarter basis, starts totaled 18,366 units. Construction starts data is typically revised upward retrospectively in subsequent quarters as additional starts are identified, according to NIC.

During the first quarter of 2017, the average rate of seniors housing’s annual asking rent growth was 3.3 percent, down 40 basis points from the prior quarter but up from 3.1 percent in the first quarter of 2016.

 “Considering the continued strong inventory growth and sustained levels of construction, this solid same-store rent growth is notable. From year-earlier levels, it was fastest for independent living properties, whose asking rents increased by 3.5 percent, compared to the 3 percent gain seen in assisted living properties,” says Chuck Harry, NIC’s chief of research and analytics. “Both first-quarter growth rates, however, were below their respective pace of growth during the latter half of 2016.”

Occupancy in skilled nursing, which NIC tracks separately from other types of seniors housing, increased 40 basis points over the previous quarter to 87.2 percent in the first quarter of 2017 from 86.8 percent at the end of 2016. The nursing care annual inventory growth rate was “virtually zero” in the first quarter of 2017, while annual absorption was down by 0.4 percent. Private-pay rents for the sector grew 2.7 percent year over year this quarter, down 20 basis points from year-earlier levels.

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