After tumbling to an eight-year low in Q2, senior housing occupancy nationwide remained unchanged at 87.9%, according to the National Investment Center for Seniors Housing & Care (NIC) Q3 market fundamentals report.
The occupancy rate is 0.8 percentage point lower than a year ago, 2.3% lower than the most recent high water mark of 90.2% in Q4 2014, and is at its lowest point since the rate reached 87.5% in Q2 2011.
Assisted living occupancy rose 0.1 percentage point to 85.3%, while nationwide occupancy for independent living held static at 90.2%.
Steady as she goes seems to be the theme of NIC’s Q3 report. Annual rent growth inched upward by 0.2 percentage points to 2.9%, but the rent growth for independent living rose a half percentage point, to 3.1%. “Rent growth has been less than wage growth for the past six quarters,” NIC Chief Economist Beth Burnham Mace told Senior Housing News. With tight labor markets, upward pressure on wages is likely to continue, which will put pressure on some operators’ ability to grow net operating income (NOI).
“Sixty percent of operators’ expense load is on wages and benefits,” Mace said.
The NIC report does contain some optimistic news. The number of occupied senior housing units increased 8.9% last quarter, equating to a solid 2.4% absorption rate.
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“It’s the fact that the rate of inventory growth has exceeded the absorption of units through this period that has driven the decline in the occupancy rate,” NIC Chief of Research and Analytics Chuck Harry said in a press release.
The static numbers from the report are not an indication senior housing occupancy rates will begin to reverse recent trends, Mace said. While the absorption rate is solid, it has not been consistent.
Still, construction as a share of existing inventory declined 0.3 percentage points to 6%. If this continues its downward trend, it can shift the supply-demand imbalance contributing to the historic low occupancy rates.
“The challenge has been that demand is strong, but it isn’t strong enough,” she said. “It hasn’t been able to keep pace with supply, and the changing inventory that we’re seeing.”
Written by Chuck Sudo