The outlook for independent living and continuing care retirement communities is bright this year—while other, more need-driven types of senior housing face a more troubled forecast.
Independent living can expect strong demand to push occupancy up 10 basis points this year, to 91.8%, according to the newly released Marcus & Millichap Seniors Housing Research National Report for the first half of 2017. Calabasas, California-based Marcus & Millichap is one of the largest national real estate brokerage firms, and also provides research and advisory services.
In creating its forecasts for the senior housing report, the firm included data from its own research services arm, as well as from the National Investment Center for Seniors Housing & Care (NIC) and CoStar Group Inc.
The occupancy projection for CCRCs is even better than for independent living. A 20 basis-point annual increase should push occupancy to 91.1% by year end, according to the report.
“The trends for independent living and CCRCs are very positive for the industry,” Marcus & Millichap Associate Rick Lynn told Senior Housing News.
Specifically, it’s a good sign that demand remains healthy for these asset classes because they are less needs-based than assisted living and skilled nursing, he said. This shows that people see senior housing as desirable and are opting to move in to communities.
Consumers are being aided by accelerating home prices, the report points out. Single-family home prices have bounced back following the Great Recession, and the homeownership rate for those older than 75 has fallen toward 75%, from a high of 80% in early 2013. This suggests that seniors are tapping home equity to move into senior housing communities.
Gray Skies for Assisted Living
Demand also remains healthy for assisted living, but the sector has been hit by oversupply, suppressing occupancy, Lynn said.
It’s a story that’s been told by major providers and real estate owners in recent months, and the Marcus & Millichap report underscores that occupancy will be down overall in 2017. Specifically, AL occupancy will dip 40 basis points this year, to 89.3%, the report projects.
Skilled nursing faces a complicated environment, with Medicare and Medicaid reforms continuing to create turbulence, while regulatory oversight, labor pressures, and other challenges are adding to the headwinds.
“There are a lot of things stirred in the pot for skilled nursing,” Lynn said.
Occupancy for skilled nursing is projected to dip 40 basis points in 2017, hitting 86.4% by year-end.
Still, there is some upside in skilled nursing. Certificate-of-need laws in many states constrain supply, so investors still see skilled nursing as a potentially smart long-term play, given that the aging population should create a surge in demand in coming years, Lynn said
This is one reason why the price-per-bed for skilled nursing reached its highest level in five years in 2016, hitting $91,600.
Private capital primarily is driving skilled nursing transaction velocity, the report states. Real estate investment trusts (REITs) are primarily interested in independent and assisted living, while they have been offloading skilled nursing assets.
Overall, there still is healthy investor interest in senior housing, according to Lynn.
“There’s plenty of capital out there, both debt and equity,” he said.
Written by Tim Mullaney