As it turns out, the senior housing market may not be past its peak after all. Although the occupancy outlook for 2016 differs by property type, the industry as a whole is poised for success and rents will increase across the board.
In fact, a sunny economic outlook and favorable demographic trends will propel the national seniors housing market forward in 2016, according to Marcus & Milichap’s National Seniors Housing Research Report for the first half of 2016.
“The outlook overall for seniors housing this year will remain very favorable, as it was in 2015,” Brian Murdy, senior vice president/national director at Marcus & Millichap division Institutional Property Advisors (IPA), tells Senior Housing News.
Overbuilding is still a concern, but that too will ease, the report says.
Thousands of senior housing units are under construction this year, resulting in some supply-side pressure in select markets and softening fundamentals, according to the report. But demand for senior housing will rise as baby boomers edge closer to retirement in the next few years, easing overbuilding concerns and strengthening property operations, the report predicts.
Additionally, tight conditions and limited supply growth in select regions around the country could start to foster increased development as demand strengthens and rents advance to unprecedented levels, the report says.
“Overall, development appears to be in check,” Murdy says.
Investment in senior housing assets will continue to be strong throughout 2016, as the segment provides buyers with favorable spreads compared with other traditional multifamily properties. Properties with a value-add component are particularly attractive to private buyers. Assets in need of repositioning will continue to be popular, as capital infusions enable owners to push rents and increase yield.
“There are more investors entering the senior housing sector than there were last year,” Murdy says. “There are also new investors looking to enter the seniors housing marketplace. You’re having additional institutional interest in the sector that is going to keep activity strong.”
Overall, price per unit is almost triple the cyclical low reached in 2010 and initial yields are holding steady in the mid-7% region, the report says. Cap rates for independent living and assisted living communities have compressed and will hover in the low-6 to high-7% range, depending for the most part on asset location and quality.
When it comes to 2016 occupancy, some senior housing types will fare better than others, the report indicates.
Occupancy at independent living communities will increase 10 basis points in 2016 to 91.9%, as new supply coming online rises to meet strong demand, Marcus & Millichap predicts in the report. Rent growth in independent living will stay steady as well, hitting $2,997 per month by the end of 2016 on a 2.6% annual increase.
The national stabilized occupancy rate at continuing care retirement communities (CCRCs) will continue to increase this year, reaching 93.2% by the end of 2016 on a 30 basis points annual increase. The average monthly rent will also rise, jumping 2.3% year-over-year to $3,074 per unit in 2016, the report says.
Demand for assisted living units will remain strong, but rising completions will place downward pressure on stabilized occupancy, falling 20 basis points to 93.1% by the end of the year, the report says. The average monthly rent nationally will jump 2.4% to $4,412 per unit.
Occupancy at skilled nursing facilities, meanwhile, will continue to fall despite units coming out of service, dropping 20 basis points to 87.1% by year-end. This decline will have little impact on rent growth, though, and the average daily rate will increase 3% to exceed $300 per bed for the first time ever, the report says.
Written by Mary Kate Nelson