Those worried that independent living might be facing a problem in the form of many vacant units can breathe a sigh of relief, at least for the moment. During the third quarter of 2016, the absorption rate for independent living hit a historic high, according to the latest quarterly report from the National Investment Center for Seniors Housing & Care (NIC).
“Independent living is at the highest rate of absorption since we began tracking more than ten years ago,” Chuck Harry, NIC’s chief of research and analytics told Senior Housing News.
The absorption rate is a measure of demand, and is the rate at which senior housing units are sold during a given period of time.
The annual absorption was 2.5% for quarter three, which is up from 2.4% last quarter. But just one year ago during quarter three of 2015, the absorption rate was 2.0%, according to NIC.
“It was a very active quarter for independent living,” Beth Burnham Mace, chief economist for NIC, said in a press release. “Nearly 2,500 units were absorbed on a net basis, the most in a single quarter since NIC’s data collection began in 2006.”
Last quarter’s numbers surrounding absorption raised some red flags about independent living occupancy moving forward, and potential senior housing oversupply has been a hot topic over the last year. But the third quarter saw occupancy increase slightly for senior living overall. The rate is said to be stable, according to NIC.
The occupancy rate averaged 89.8%, which is a 0.1 percentage point increase from quarter two and is also the average for the past three years.
“Last quarter was just one quarter,” Harry said. “When you look at the occupancy over the last three years, it has really plateaued and has been oscillating around this 89.9%. We categorize that as stable.”
Looking forward however, there has been a lot of concern lately around the number of units popping up, explained Harry.
“The concern is that supply may outpace demand, but that is not being seen yet,” he said. “If you look more closely at this quarter’s construction starts, those number are the lowest we’ve seen since the end of 2014.”
Operators Show Pricing Power
There was also an increase in asking rent for senior housing, as a whole.
The average rate of annual asking rent growth was 3.8%, which was 0.6 percentage point above the second quarter’s pace. This was also the fasted growth rate for asking rents since 2007.
“Both independent living and assisted living have seen a marked increase, but the independent living side is particularly high,” Harry said. “That would be suggestive of some pricing power and that is selective of the underlying demand trends. Demand is staying high.”
The economy as a whole and the housing market in particular are also improving, which may be an indicator as to why asking rent increased, he added.
NIC has also started tracking actual rents and recently issued its first report on this.
Written by Alana Stramowski