Senior Housing Construction Tapers, But Assisted Living Not Slowing Down

While recent data show senior living construction starts have decreased by 65% in the first quarter of this year compared to the same quarter last year, senior housing experts say increasing occupancy rates, expanding demographics and other indicators reveal a formidable future for the senior housing industry. 

“Construction activity has moderated slightly, which might be weather-related, but there is a lot of capital in the sector, so we’re expecting there will be more product coming into the market as we go forward,” said Beth Burnham Mace, chief economist and director of capital markets for the National Investment Center for the Seniors Housing & Care Industry (NIC), during a recent webinar hosted by National Real Estate Investor.

Assisted living’s expected supply increase and absorption rates over the next four quarters outpace those of independent living, data show.

“In assisted living the dynamics are considerably different, there’s much more supply and demand than in independent living,” said Chris McGraw, senior research analyst with NIC.

Analysts expect a significant uptick in supply and demand for assisted living compared to past quarters.

Over the next four quarters NIC leaders expect assisted inventory growth of about 6,700 units, or an increase supply of 3.4%; and absorption of 5,900 units, or 3.9%. Those projections surpass the last four quarters’ numbers, during which supply increased by 2.3% and absorption by 2.8%, according to NIC data.

Independent living’s projected numbers reveal a slight slow down in inventory growth.

Over the next four quarters experts expect independent inventory growth of about 2,000 units and absorption of 4,900 units, which represents a supply increase of about 0.6% and absorption of 1.7% — less than the last four quarters, which showed a supply increase of about 0.9% and absorption of 1.9%, according to NIC data.

Slow construction starts were not unique to the seniors’ housing market, McGraw noted, adding that other property types, such as multi-family and residential, also showed construction starts slowing slightly in the beginning of the year — likely also because of an unusually cold winter.

In the first quarter of this year, assisted living had the most construction overall at about 9,000 units, which represents 5.1% of existing supply; however, because of slow construction starts, assisted living construction is down 7% from its recent main peak in the third quarter of 2013.

Independent living ranks second at 3,000 units under construction, which represents 2.5% of existing supply. 

However, “independent living construction appears to be off the bottom as it’s up 120% since it’s 2011 low,” McGraw said.

Continuing care retirement communities’ (CCRCs) construction rates have continued to decline over the past few years, McGraw said.

In the first quarter of this year, 2,600 units, which represents 1.1% of existing supply, were under construction — that’s 76% below CCRCs’ construction mid-2007 peak. And within those 2,600 units, about two-thirds are in the nonprofit space and most of that construction is concentrated in expansions, McGraw said. 

The decline in CCRC construction can be attributed to their scale and production costs, which are large, McGraw said, adding that from 2009 to now CCRCs have had weak occupancy, which may make developers cautious. 

Written by Cassandra Dowell