Talk of oversupply has permeated the seniors housing industry for months on end, with real estate investment trusts (REITs) and operators alike expressing fears and doubts about the future of the market. Is it possible, though, that seniors housing developers have not been building enough to keep up with demand?
The United States will need more than 3 million seniors housing units by 2040—about 2 million of which still need to be constructed, according to a recent brief from the American Seniors Housing Association (ASHA).
The authors, Phil Downey and Larry Rouvelas of Senior Housing Analytics, and Francesco Rockwood of real estate services firm Rockwood Pacific, calculated future seniors housing demand estimates by projecting historic seniors housing market penetration rates forward to 2040.
If current penetration rates hold, the report says, seniors housing demand is expected to more than double by 2040. Specifically, seniors housing demand is expected to rise to 3.2 million units by 2040, which is 1.8 million units higher than 2015 levels, the report says.
The rate of demand growth will increase after 2025, as baby boomers pass the age of 80. The demand is anticipated to rise from 25,000 units per year from 2015 to 2020 to 96,000 units per year from 2030 to 2035, the report says.
In the near term, it’s possible that supply could surpass demand, especially for assisted living, Beth Mace, the chief economist at the National Investment Center for Seniors Housing & Care (NIC), said in a January post on the NIC Cares Blog. Over the course of 2016, she said, almost 9,500 assisted living units are expected to be built.
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The top 99 metropolitan statistical areas, as determined by NIC, absorbed an average of 16,000 total seniors housing units per year from the first quarter of 2011 to the fourth quarter of 2015, the report notes. Because these markets include 62.5% of the population who are over 80 years old, the projection range of 26,000 units per year from 2015 to 2020 seems to be directionally consistent with current absorption trends, the report says.
Seniors housing annual absorption has been increasing, according to NIC. The annual absorption in the first quarter of 2016 totaled 2.5%, an increase of 2.1% over the previous quarter.
All in all, sustained seniors housing production nearing 100,000 units per year would be necessary between 2025 and 2040 in order to address the projected demand, the report concludes.
Written by Mary Kate Nelson