Occupancy rates edged higher at the end of 2015, according to the latest data from the National Investment Center for Seniors Housing & Care (NIC).
While the occupancy numbers suggest supply and demand are in balance, NIC also predicts that many senior housing projects will be completed in the coming year, driving inventory growth toward a record pace.
In its fourth quarter market fundamentals Map Data, occupancy rates, which rose slightly for the first time in 2015 in the third quarter, continued their upward trend, bucking seasonal concerns.
Overall, the market breached the 90th percentile, gaining 0.2% in occupancy to end the year at 90.1%, 3.3 percentage points above its cyclical low during the first quarter of 2010. In the last three months of the year, both independent living and assisted living saw a minimal rise in occupancy rates, while nursing care dropped marginally from the previous quarter.
“Since its low point in the second quarter of 2015, the seniors housing occupancy rate has increased by 40 basis points, but remains 20 basis points below its most recent cyclical peak in late 2014,” Beth Burnham Mace, chief economist for NIC, said in a prepared statement. “This shows that demand has generally been able to keep pace with the significant growth we’ve seen in supply and speaks to the relatively solid fundamentals in the sector.”
In another positive sign for senior housing operators, annual rent growth increased to 2.6% in the fourth quarter, up from 2.4% during the previous quarter. Rent growth increased across the board, with independent living and nursing care both rising 0.5% in the last three months. The rolling 4th quarter price per unit reached $158,570, compared to $151,051 in 3Q15.
One sign of potential worry was the rate of current construction as a share of existing inventory in the year-end report. While the annual rate of absorption rose modestly from quarter to quarter—0.2% overall—the rise in construction outpaced this rate and does little to quell oversupply fears, particularly within assisted living.
The overall market market rate of construction versus inventory rose to 5.5%, a new cyclical high. Assisted living construction jumped to 7.9% of inventory, up 0.5% from the previous quarter. Independent living construction also inched up 0.1%.
Although inventory growth for the overall market rose only 0.1% quarter over quarter, the figure is expected to climb as construction projects complete over the coming months.
“While seniors housing’s rate of inventory growth of 2.2% during 2015 remained well below its prior peak pace of 2.9% in 2008, the expected seniors housing completions during 2016 among those units currently under construction will likely result in 2016’s rate of inventory growth registering closer to 2008’s pace,” Chuck Harry, NIC’s managing director and director of research and analytics, said in a statement.