An improving economy has resulted in a stronger senior housing industry and likely will drive demand in 2016, though as construction continues to ramp up, oversupply concerns in certain markets remain very real. That’s according to the latest data from the National Investment Center for Seniors Housing & Care (NIC).
The fourth quarter of 2015 market fundamentals data found that occupancy rates had rebounded, though construction rates within assisted living teetered to an all-time high, reaching 7.9% as a share of inventory at the end of the year.
“The majority of the new construction since 2010 has occurred in assisted living,” Beth Mace, chief economist and director of capital markets outreach at NIC, told reporters Friday during a press call. “Roughly two-thirds of the overall growth of senior housing inventory was in assisted living.”
Senior housing operators can breathe easy, however, as the rate of absorption has largely kept in line with construction over the last five years, according to Mace.
“Since 2010, almost 50,000 senior housing units have come on line, and that represents a 10% increase in inventory,” Mace said. “Net absorption increased about 60,000 units over that time.”
Independent living has also seen its own rise recently, with rent growth reaching 2.9% in the fourth quarter of 2015, its highest point since 2009. That is likely due to higher occupancy rates for that part of the market. Construction of independent living as a share of inventory remains well below assisted living at 3.8% at the end of the year.
At the same time, other national data found positive economic conditions are aiding stronger gains in the labor markets and overall higher consumer confidence.
“Looking ahead, it’s also notable we got new data on the labor market conditions in December and jobs are up, well above consensus,” Mace said. “So the job market is full steam ahead. The combination of a strong economy, strong job growth, favorable consumer confidence and an improving consumer market will have favorable demand for senior housing in 2016.”
However, senior living developers need to pay close attention to oversupply concerns, as the high rate of construction could spell trouble for certain local markets. Mace warned that supply could get too far ahead in some places, particularly within assisted living.
“As a result of these broad pressures, if you’re an operator, you have to be particularly careful of supply and demand market conditions,” Mace cautioned.
Written by Amy Baxter