Although senior housing occupancy rates continued to improve in the fourth quarter of 2012 to a four-year high, overall construction activity declined while the pace of annual rent growth was flat, says the National Investment Center (NIC) for the Seniors Housing & Care Industry.
The average occupancy rate for senior housing properties in the fourth quarter rose to 89.1%, up one percentage point from a year ago and up from the previous quarter’s 88.8%. Average occupancy has risen consistently in the last 11 quarters and is 2.1 percentage points above the cyclical low of 87.1% from the first quarter of 2010, says NIC.
Independent living has a slightly lower occupancy rate than assisted living, at 89% and 89.1%, respectively. Both occupancy rates are an improvement from the previous quarter, with independent living increasing 30 basis points and assisted living up 20 basis points.
Independent living occupancy rates are now 2.2 percentage points above cyclical lows, with assisted living up 2 percentage points from its cyclical low.
“Occupancy is now at a four-year high and, with inventory growth remaining tempered, seniors housing occupancy will likely continue to recover in the near-term,” says Mike Hargrave, vice president of NIC MAP.
Annual absorption for the senior housing industry was 2.3% during the fourth quarter, compared to 2.2% the previous quarter and 2.0% in the same quarter of 2011.
“This is now the ninth consecutive quarter during which the pace of annual absorption is above that of annual inventory growth, which has resulted in the continued steady recovery in seniors housing occupancy during the past couple of years,” says Chuck Harry, NIC’s director of research and analysis for NIC MAP.
The inventory growth rate was 1.2%, a slight change from the third quarter’s 1.3% as well as the previous year’s 1.3% rate. Current construction as a share of existing inventory was 2.0%, twenty basis points below that of the previous quarter.
“While there continues to be discussion of the industry entering a new development cycle, we continue to see relatively modest levels of construction starts,” says Harry. “This implies, at least over the next four quarters, that near-term inventory growth will remain tempered.”
Annual asking rent growth for senior housing remained unchanged a 2.2% in the fourth quarter compared to the third quarter, although it was 60 basis points above the pace from the fourth quarter of 2011.
Even though the annual rent growth didn’t accelerate from quarter-to-quarter, it continues to outperform core inflation, which has been slowing recently, Harry says.
On the skilled nursing side, average occupancy stood at 88.1% in the fourth quarter, up 10 basis points from the previous quarter. Meanwhile, annual inventory growth for skilled nursing decreased 0.4% in line with the current industry trend of slightly declining inventory growth, says NIC.
However, private pay rents for the sector grew 2.9% year-over-year during the quarter, unchanged from the third quarter’s pace.
Written by Alyssa Gerace