The first quarter of 2015 was marked by weak absorption and falling occupancy levels for senior housing properties, fueling the industry’s concern that some markets are overheating.
Among those underperforming markets are Houston, Denver, Las Vegas and San Francisco, according to new data provided by the National Investment Center for Seniors Housing and Care (NIC), in its latest newsletter.
“Inventory growth was the primary culprit behind occupancy declines in Houston and Denver, while negative absorption was the engine behind declines in Las Vegas and San Francisco,” Chris McGraw, senior research analyst at NIC, writes in a first quarter market spotlight.
While Houston showed a healthy rate of absorption, its inventory grew by 2.4%, leading to a 160-basis-point drop in occupancy to 85.3%, according to NIC MAP’s first quarter data. On the other hand, Denver’s inventory grew at a slower rate than Houston’s — 1.8% during the quarter — but with no absorption, the market also experienced a 160-basis-point occupancy decline to 89.5%.
“In Houston and Denver, there was a lot of inventory growth with either very little demand or none,” McGraw tells SHN. “Inventory far outpaced absorption and that’s the reason occupancy is declining.”
Other weak markets included Las Vegas and San Francisco, although San Francisco’s drop in absorption “may be a blip,” McGraw notes in his commentary.
In the first quarter, San Francisco shed 1.6% of its occupied units during the quarter, and its occupancy rate, while declining 80 basis points to 90.5%, was still on par with last year’s levels and significantly above its cyclical low.
Similarly, Las Vegas showed a large drop in absorption, coming on the heels of positive momentum during the last few years.
However, Las Vegas’ occupancy, 86.6%, was still 1,000 basis points above its cyclical low.
“Vegas’ inventory was relatively unchanged from the prior quarter and San Francisco’s actually declined,” McGraw tells SHN. “It wasn’t supply causing pressure on occupancy; it was absorption.”
Previously, NIC warned of the possibility of oversupply in some areas where construction rates for assisted living, in particular, continued to climb. These markets included Houston, San Antonio, Kansas City, Minneapolis and others in the Northeast.
Written by Emily Study