The remainder of this year may bring more clouds for operators of memory care communities — but the senior housing sector as a whole might have a brighter future ahead, according to the latest Seniors Housing Research Report from real estate services firm Marcus & Millichap (NYSE: MMI).
As is the overall story for the senior housing industry, the delivery of new memory care units has overshadowed demand in many markets. For freestanding memory care communities in the U.S., national stabilized occupancy fell from above 90% roughly five years ago to 85.4% in the second quarter of this year, the report noted.
And it doesn’t look like those woes will abate through the remainder of this year. Stabilized occupancy is expected to decline another 160 basis points to rest at 85.2% by the end of 2018, leading to a thinning construction pipeline and a reduced pace of completions, according to the report. This could, however, positively impact future occupancy.
Meanwhile, the pace of memory care rent growth is forecast to slow for the second year in a row and remain below 2% this year. The average memory care rent is expected to rise to $6,453 per month in 2018, partly due to higher care needs and rising health care costs. Private investors are likely to target memory care communities throughout the rest of this year, while mergers are expected to provide a boost to memory care transaction velocity.
Memory care operators have had many woes in recent years, particularly with regard to occupancy. Lake Oswego, Oregon-based Anthem Memory Care, for example, had trouble raising equity and paying its quarterly rent in full to LTC Properties (NYSE: LTC), its real estate investment trust (REIT) landlord—however, the worst of it appears to be behind the memory care operator.
Other senior housing sectors might be in for a better remainder of 2018. Independent living, for example, is expected to see lower inventory growth and higher absorption this year. Still, independent living occupancy may still well decline to 89.9 percent this year, the lowest level since 2012, the report noted.
On the assisted living side, occupancy is forecast to dip down to 87.4% this year, while rent growth is expected to remain healthy. Occupancy for continuing care retirement communities (CCRCs), on the other hand, should remain above 90% in 2018 as rent growth rises.
Access the full report on the Marcus & Millichap website.
Written by Tim Regan