Fears that the senior housing sector could be overbuilt might be all too true, newly released data suggests.
New inventory hit a six-year high in the second quarter, but declining occupancy shows supply is outstripping demand. And this could be only the beginning, as more new developments are poised to come online.
About 3,600 units were delivered in the second quarter of this year, most of them assisted living, according to data released today by the National Investment Center for Seniors Housing & Care (NIC).
That’s a big spike from previous quarters, NIC Senior Research Analyst Chris McGraw tells SHN. Specifically, new inventory has not exceeded 2,600 units in a given quarter since Q2 of 2009.
“There’s been a lot of chatter about development the last couple of years, but it hadn’t materialized in the data until this quarter,” McGraw says. “It’s the consequence of development that started a couple years ago in assisted living, and this is the first time we’re seeing that come online.”
With those developments now opening their doors, NIC expects to see inventory figures more in line with these latest figures in the next few quarters, McGraw says.
When it comes to how well markets are absorbing the new inventory, some locations are doing better than others. That holds true even within a single state, McGraw says.
For instance, Texas has been a hotbed of development. Houston has done “fairly well” in terms of absorption, Dallas a bit less so, while San Antonio actually has seen negative absorption.
Riverside, Calif. is another struggling market, while Phoenix and Minneapolis are still seeing gains in occupancy, NIC Chief Economist Beth Mace said in a prepared statement.
As for the nation as a whole, occupancy decreased by 0.2 percentage points from the prior quarter for each seniors housing property type tracked by NIC. The occupancy rate for independent living properties averaged 91% and assisted living properties averaged 88.4%.
Occupancy for independent living was 0.5 percentage points above levels from a year prior, while assisted living was down 0.3 percentage points. For the seniors housing sector as a whole, occupancy 3.1 percentage points above its cyclical low of 86.8% during the first quarter of 2010.
“Demand, as measured by the number of units absorbed, recovered from the first quarter’s low levels, but the slip in occupancy shows that the pace of demand did not match new supply,” stated Mace.
Indeed, the quarter’s 2.1% annual absorption was “relatively good,” and NIC is forecasting that absorption will remain fairly stable moving forward, McGraw says. But he reiterates the need to look at the local level.
“That’ll give you a more relevant indication in benchmarking performance,” he says. “Real estate is a local business.”