Fewer Lucrative Opportunities Stunt Senior Housing Construction Growth

Senior housing construction starts have nosedived 53% since the 2008 housing market crash, according to the National Investment Center for the Seniors Housing & Care Industry (NIC), and even though demand is growing, lucrative opportunities for developers are dwindling as “hot spots” around the country turn lukewarm.

“Hot spots are the places where there’s high occupancy and low barriers to build,” says Larry Rouvelas, who co-founded Senior Housing Analytics along with Phil Downey.

However, these “hot spot” metropolitan areas with high occupancy levels often turn into a developer’s playground, says Downey, and many places with the best opportunities have already been developed.


“If you look at performance statistics, some seem to be performing at a higher level, and they seem to present more opportunity,” he says. “That always seems to coincide with a higher level of challenge, finding developable sites at an affordable price. It’s a classic situation, low barrier markets seem to disproportionately attract high volumes of development.”

In terms of high levels of construction activity, current “hot spots” include Chicago, Ill., New York City, NY, San Francisco and Los Angeles, Ca., Dallas, Tex., Minneapolis, Minn., St. Louis, Mo., and Phoenix, Ariz., but that corresponds to those being large markets with bigger populations, says Chuck Harry, director of research and analysis at NIC, not necessarily because they are low barrier.

However, new “hot spots” may crop up around the country as the population ages; U.S. Census data predicts that nearly 20% of Americans will be aged 65 or older by 2030.


“Generally, [developers] are looking for areas where there’s solid demand, level of occupancy rates, and ability to demand appropriate level of rent,” Harry says.

Areas that are attracting less attention but present opportunities for development because of a relatively low barrier to entry include Nashville, Tenn., Orlando and Dublin, Fla., Lancaster, Pa., and Bridgeport, Conn. Each of the cities has seen construction increase in renovation and ground-up development, according to Senior Housing Analytics‘ compilation of NIC data.

“As our industry matures, the opportunities to add supply are still there, but developers need to be more discriminating and more focused in terms of how you isolate those opportunities,” says Downey.

Senior housing construction starts have been hanging at a cyclical low for the past few quarters, says Harry. This, in turn, is putting pressure on occupancy rates, causing them to increase slightly.

And, since annual inventory growth has dropped to 1.1% in the second quarter of 2011, down from 2.1% the previous year, according to NIC data, it’s likely occupancy levels will continue to rise through the next year.

As greater numbers of older Americans head toward retirement and beyond, the need for new construction will eventually reach a tipping point.

“We don’t anticipate a boom, per se, over the next four quarters,” says Chuck Harry, NIC. “At this point, we’re not looking at that. Given the demand, we’d expect there will be an increase in the current rate of construction, in the future. Time will tell when that is.”

Written by Alyssa Gerace