NIC: Seniors Housing En Route to Recovery as Demand Outpaces Supply

The seniors housing market is on the road to recovery in terms of occupancy, rent growth, and absorption versus construction rates, according to trends that were discussed at a National Investment Center for the Seniors Housing & Care Industry (NIC) Midwest Market Briefing in Chicago on Thursday.

“We have turned the corner. We’re in a recovery,” said Chuck Harry, director of research and analysis at NIC.

There’s still a long way to go, however, as the industry has only recovered a fifth of peak-level occupancy.


In early 2006, seniors housing occupancy was at roughly 92%, considering both assisted living and independent living. In 2010, according to NIC data, occupancy bottomed out to 87.1%.

While occupancy went up 100 basis points to 88.1% in the third quarter of 2011, it’s a far cry from 2006 and 2007 levels.

“The downturn in the occupancy rate was a relatively steep slope unfortunately; the recovery rate is much shallower,” he said. “It will be a while in terms of our expectations before recovering back to the 92% level of the peak period.”


Comparing assisted living and independent living, Harry noted a trend reversal where assisted living is now outperforming independent in terms of occupancy, which some attribute to independent living being less “needs driven.”

While assisted living started out lower in terms of occupancy, it dropped significantly fewer basis points before recovering to 88.6%. Independent living started out with a higher overall occupancy, but dropped more than 500 basis points, of which is has recovered only 100, back up to 87.9%.

“Interestingly, that relationship doesn’t hold up when you start to look at year over year rent growth,” said Harry. “Even throughout the downturn, the rate of rent growth remained positive.”

Independent living has seen higher rent growth, climbing to 1.8% as of the third quarter on a year over year basis, compared to assisted living’s 1.1%.

Despite independent occupancy levels taking a bigger dive and taking a slower route to recovery, higher rent growth may be the result of the sector’s rates being lower-based, as they’re not as inclusive as assisted living with services charges.

However, in terms of core inflation, rent growth rates aren’t keeping up with the pace of energy and food cost inflation, said Harry, a factor to consider going forward in the sector.

Lessening supply and growing demand is another positive trend in the seniors housing industry, as absorption is the highest it’s been in two years, Harry said.

“For seven quarters running, the annual absorption is outpacing the trailing 12 months of construction starts as a share of inventory,” said Harry. “That’s helping to provide upward pressure on the occupancy rates. If this relationship can hold over time, we would expect to continue to see more upward pressure on occupancy.”

The volume of construction starts is reflective of what will be coming online in the future, he said, noting an important forward looking indicator: seniors housing absorption, at 1.9%, outpacing construction starts, at 0.9%.

In terms of transaction volume, seniors housing has made a significant splash in the investment world. Real Estate Investment Trusts (REITs) have made substantial acquisitions, account for almost all buying activity in 2011.

The seniors industry has seen $28.6 billion worth of transactions for the rolling four quarters ($14.7 billion for seniors housing, and about $14 billion for seniors care), with more than $12 billion in the second quarter alone, and a respectable $9.6 billion in the third quarter.

Seniors housing and care has topped all other real estate categories in terms of transaction volume year to date, said Harry.

“With numbers like that, our sector is attracting a lot of attention among the broader investment community,” he said.

Written by Alyssa Gerace