Q4 Senior Housing Occupancy Rate Held Steady, Promising Signs Emerged

Although senior housing occupancy rates nationwide remained near historic lows in Q4 2018, the increase in occupied units hit a new high, according to the National Investment Center for Senior Housing & Care (NIC) Q4 market fundamentals report.

Q4 2018 senior housing occupancy Courtesy of NIC
A snapshot of Q4 2018 senior housing occupancy rates, as recorded by NIC.

Overall senior housing occupancy inched upward by 0.1% in Q4, to 88%, although this number is 0.7% lower than Q4 2017. Occupancy rates for independent living held steady at 90.2%, while assisted living occupancy continued an upward trend, rising 0.1% to 85.4%, NIC Chief of Research and Analytics Chuck Harry told Senior Housing News. The current occupancy is 2.2% lower than the most recent high of 90.2%, set in Q4 2014.

The report does contain reasons for optimism. The number of occupied senior housing units increased 1% (5,149 units) last quarter, which is the highest recorded since NIC started tracking data in 2006, Harry said. In previous reports, NIC cited the rate of inventory growth exceeding the absorption of units as the main driver in the downward trend in the occupancy rate.

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Even though demand kept up with new supply last quarter, Harry indicated it is too soon to foretell what might happen this early in the new year.

“We’re taking a wait-and-see approach on the occupancy and absorption, moving forward,” Harry said. “Keep in mind that Q1’s numbers will be reflective of the winter months, which can create downward pressure on occupancies.”

Construction as a share of existing inventory remained unchanged, at 6% overall, and 1.3% lower than the same time frame in 2017. In independent living, construction as a share of inventory rose 0.3% to 4.9%, while assisted living fell 0.4% to 7.3%.

Senior housing construction starts for the 31 primary markets NIC covers totaled 3,247 units: 1,695 independent living units and 1,552 assisted living units. On a preliminary four-quarter basis, starts totaled 16,680 units. Construction starts data is often revised retrospectively in subsequent quarters as additional information becomes available, NIC said.

Wage growth continues to impact NOI

Annual rent growth inched upward by 0.1 percentage points to 3%. That is still 0.8% lower than the most recent high, recorded in Q4 2016. But labor wages, mainly on the assisted living side, continue to place pressures on operators looking to grow net operating income (NOI).

“Year-over-year quarterly hourly earnings growth for assisted living has exceeded 4% since early 2017, more than in many other sectors,” NIC Chief Economist Beth Burnham Mace said in the release. “Because labor expenses account for roughly 60% of an operator’s expenses, this ongoing wage growth is putting pressure on operator’s ability to grow NOI, especially in markets where revenue growth is being impaired by weak occupancy and slower rent growth.”

The northeastern U.S., with markets such as Boston, New York City, Pittsburgh and Philadelphia, had the strongest occupancy rate in the country at 91%, while the southwestern part of the country, which includes Dallas, Houston and San Antonio, recorded the lowest rate, at 82.8%.

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