New senior housing development reached a peak in the third quarter of 2015, hitting the highest level of activity the industry has seen since the National Investment Center for Seniors Housing and Care (NIC) began recording such data in 2008.
About 44,000 senior living units were under construction as of Sept. 30 in the nation’s 99 largest metropolitan markets, accounting for 5.2% of existing inventory, according to NIC. These figures represent the most units under construction and the highest rate of construction as a share of existing inventory since NIC started tracking the data, writes Beth Mace, chief economist and director of capital markets at NIC.
“I think it means that you need to be diligent in acquisitions and development activity, because there’s more going on now than in recent history,” Mace tells Senior Housing News.
Not all markets are experiencing such high levels of development activity, though, Mace writes. In fact, 34 metro markets make up nearly 80% of all construction activity, meaning that the remaining 65 markets tracked by NIC represent just 20%. Nashville registered the highest rate of construction at 24% of existing inventory, while Chicago had the most units under construction at nearly 3,000.
Further, assisted living accounts for more development activity than independent living, but Mace says she has noted an uptick in the latter.
“Because assisted living is more need-based as opposed to choice-based, it held up a little better during the recession,” Mace says. “There’s now more investor interest as a result.”
Construction activity is expected to remain “relatively robust” for the next 12 to 24 months, Mace writes, and investors are taking note. A recent survey conducted by Capital One (NYSE: COF) indicates that 41% of senior housing professionals who participated believe new development will provide the greatest investment opportunities in the coming year. However, 35% of those surveyed pointed at overbuilding as their primary concern moving forward.
Despite such oversupply fears, Mace affirms that excess supply is still confined to select markets.
“If it continues at this pace, then yes, [oversupply] could be a national phenomenon, but we’re not there yet,” Mace tells SHN. “It’s a natural part of the business cycle, and it will adjust.”
Written by Kourtney Liepelt