The rate of construction for assisted living continues to climb, spurring industry members to discuss the possibility of oversupply in some areas.
But data show the potential of oversupply is a risk in only select markets, according to data from National Investment Center for Seniors Housing and Care (NIC).
The rate of construction for assisted living properties climbed during the past two years past 4%, then 5%, and neared 6% of the existing inventory, NIC data show.
“These national numbers certainly raise the question,” said NIC Senior Research Analyst Chris McGraw, noting that construction represented 5.5% of existing supply within the 99 metropolitan markets during the fourth quarter of 2014.
Twenty metropolitan markets represented more than 60% of assisted living’s total construction during the fourth quarter of 2014, NIC data show.
“While spatial diversity has been on the rise, with more markets beginning to show activity, construction has remained concentrated,” McGraw said.
Some markets at risk for overheating in regard to construction starts include Houston, Texas; San Antonio, Texas; Kansas City, Mo.; and Minneapolis, Minn.; as well as others in the Northeast, data show.
“In some markets it is concerning that there is a fair amount of product underway,” said NIC Chief Economist Beth Mace during a webinar Wednesday on the market outlook for 2015, hosted by Senior Housing News.
“A market like San Antonio that has 1,600 units under construction is concerning given what’s going on in the Texas economy and given its occupancy rate of 88.1%, which is below that of the primary and secondary markets,” she said.
Still, highly concentrated construction markets that boast high occupancy levels are not as concerning because they likely are able to absorb that supply better, she said.
Construction collectively represented 8.7% of existing inventory in the aforementioned 20 metropolitan markets, compared to a mere 3.5% in the remaining 79 markets — further highlighting that the potential for oversupply is only a risk in select markets.
“However, this could possibly change as the sector continues to attract capital and some of which may opt for developing additional new properties over acquiring existing properties,” McGraw said.
Written by Cassandra Dowell