Senior Housing Development Begs Hyper-Local Market Approach

This coverage of the 2017 National Investment Center for Seniors Housing & Care Spring Investment Forum is brought to you by Mainstreet. As the nation’s largest developer of transitional care properties, Mainstreet specializes in real estate development, value investments and health care. With Mainstreet’s support, SHN is bringing event coverage of the NIC conference, which draws developers, providers and operators within the post-acute and preventative health care services space.

In all real estate, no two locations are alike, and senior housing is no exception. But with recent data showing overheating in certain markets and among specific property types, it’s even more important for developers to consider their locations wisely.

“There are no two markets that are the same,” said Beth Mace, chief economist and director of outreach for the National Investment Center for Seniors Housing and Care, during the NIC Spring Investment Forum last week in San Diego. “You can talk about national trends and take from that, but it’s important to drill down to look at what’s going on at the local market level.”


From market to market, supply and demand pressures vary widely, Mace noted, sharing NIC MAP data on several geographic areas. 

Despite fourth quarter data released by NIC indicating assisted living occupancy is down on average nationally, occupancy varies by market and across property types, with 19 markets experiencing occupancy declines year-over-year and 12 experiencing improvements, as of the latest NIC MAP data which comprises the top 31 metro areas across the U.S. 

Likewise, inventory varies widely across the country—also an important consideration for those pursuing new construction of senior housing communities. Seven markets of the top 31 represent 40% of the growth in units, according to the NIC data. 


Take, for instance, the major markets in Texas.

Markets in the Lone Star State have experienced development across all property types, with Austin having 1,300 senior housing units under construction. By NIC’s estimates, it will take 4.5 years to be able to absorb that number of units in greater Austin, which has put downward pressure on occupancy. 

In Houston, however, the story is different. Here, demand seemed to warrant new construction, until demand suddenly changed. Recent population growth and development have followed trends in oil prices, as the city is a major producer. Job growth boomed along with oil prices hovering around $100 per barrel though mid-2014, then prices plummeted to below $30 per barrel months later, leaving the area without a strong market for labor, and depleting some of the demand for senior housing in a short time period. 

“Despite the economy slowing down, we saw a lot of inventory coming to the market,” Mace said. “Demand held up to a degree, but not enough. My crystal ball says unless oil prices rise, the Houston economy will be on a slower path and that will have an impact on the ability to absorb inventory in the market.” 

Coastal markets, which tend to have higher barriers to entry, tend to have constrained supply. This can lead to higher occupancy in some cases. In San Jose, Calif., the occupancy level for senior housing is around 95%—far above the national average. Yet developing in the area is a challenge.

There’s no perfect analysis, Mace said, but drilling down into markets will help inform future development. 

“It’s important to do the due diligence to understand what the competition is, and what the potential competition is,” she said. “NIC MAP is a good place to start, but it’s not an end all. You have to go to planning departments and understand what’s entitled and what might be entitled…Another mistake could be not partnering with an appropriate operator. This is an operating business.” 

While these are trends developers and operators have long tracked when choosing new site locations, there is one factor that is growing in importance: labor.

Recent estimates from industry association Argentum have placed the number of additional caregivers needed to meet the demands of the growing senior population at around 1.2 million by 2025.

In terms of the national ratio of caregivers to seniors, today there are seven adult children for every person over 80, Mace said. By 2050, that ratio will be 3:1.

“The labor market is increasingly important,” Mace said. “It’s hard to get labor. A lot of feasibility analysts are not only looking at demand [for senior housing] but also what is the supply of labor. That was not the case six or seven years ago. It’s going to be with us for probably the next 20 years.”

Written by Elizabeth Ecker

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