Senior Housing Occupancy Falls to Another Record Low in Q3

Covid-19 continues to adversely affect senior housing occupancy, which reached another record low in the third quarter of 2020, according to data released by the National Investment Center for Seniors Housing & Care (NIC).

The average occupancy rate across NIC’s 31 primary markets fell to 82.1% – a 2.6 percentage point decline from the second quarter and 5.6 percentage points lower than Q1 2020.

Courtesy of NIC
Senior housing occupancy fell to a new record low in the third quarter of 2020.

The pandemic impacted majority independent living and majority assisted living in near-equal measure. Independent living occupancy fell 2.4 percentage points to 84.9% in Q3, while assisted living occupancy dropped 290 basis points in the quarter to 79.1%. Assisted living, in particular, has seen a significant dropoff in occupancy since the fourth quarter of 2019, when it recorded an 85.7% occupancy rate and showed signs of a turnaround.


This is the second consecutive quarter where occupancy rates fell by 2.5%, meaning the industry is in the midst of its largest occupancy decline on record. And occupancy will be further pressured for the foreseeable future as the pandemic persists and positive coronavirus cases are rising again, with the United States well into autumn.

Although a patchwork of regulations across the country has many states and municipalities continuing to impose restrictions on visitation to long-term care facilities including senior housing, the bigger threat to occupancy at this stage is customer attitudes toward the product, NIC Chief Economist Beth Burnham Mace told Senior Housing News.

Ongoing visitation restrictions at communities across the country put pressure on family members moving their parents into senior housing. Residents, meanwhile, don’t want to be viewed as being in a lockdown situation. Mace believes that the industry has learned lessons about the importance of socialization from the pandemic’s early weeks, and operators need to strike a balance between socialization and safety in order to increase move-ins.


“Some operators have figured out how to do that,” she said. “The perception that you’re moving into a property and might not have access to your family or friends is having an impact on demand.”

‘Barbell effect’ is clear

A deeper dive into the numbers reveals a wide disparity between markets positioned to ride out the pandemic versus markets where the virus is contributing to bigger occupancy woes – which Mace calls a “barbell” effect.

San Jose (89.9%), San Francisco (87.0%), and Portland (85.5%) had the highest occupancy rates of NIC’s primary markets. Conversely, Houston (75.9%), Atlanta (77.4%), and Phoenix (78.6%) recorded the lowest rates. Furthermore, occupancy rate declines vary by market. Sacramento recorded an 80.6% occupancy rate in the third quarter – a dropoff of 860 basis points. Washington, D.C., meanwhile, saw a more modest 2.2% decrease, to 84.7%.

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In total, 34% of senior housing properties in NIC’s primary markets reported occupancies above 90% in the third quarter, while 36% reported occupancies below 80 percent. And there are fewer communities with strong occupancies as the outbreak progresses. The percentage of communities with occupancies of 95% or greater stood at 15% in Q3, compared to 33% in the first quarter.

“We saw that pattern emerge in the second quarter, and it continued into the third quarter,” Mace said.

The bifurcation between strong and weaker markets will endure. Communities in markets with higher occupancy rates will be able to withstand the stress of Covid-19, in terms of their occupancy and their revenues. Those struggling to growing occupancy will find themselves inching closer to distress.

“If your property occupancy is 75.9%, that’s difficult to make the NOI that you need [to operate],” she said.

IL inventory influx, construction starts drop

Even as the pandemic was suppressing senior housing occupancy, the third quarter saw an influx of new independent living product. The inventory increase for IL was the largest it has been since 2009.

“This reflects the relatively robust lending and development environment of 18 to 24 months ago that supported construction starts back then and which now are completed properties entering the market,” NIC COO Chuck Harry said in a press release.

However, the landscape now has changed, as the pandemic has impacted construction starts significantly. New construction starts accounted for 5.6% of total inventory in the third quarter, a 60 basis point sequential decline. Only 551 independent living units broke ground in the third quarter, the lowest number on record since 2011. And 788 assisted living units broke ground in the quarter – the lowest total since 2009, Mace told SHN.

This is due in part to tightening capital markets for construction lending as the coronavirus swept across the country. Developments with financing in place pre-pandemic are underway, while those announced during the outbreak struggle to secure financing. Many lenders refuse to review new projects and offer term sheets, and an imbalance in the debt and equity markets for construction lending has led to extended closing timelines to secure funding.

But there is a silver lining in these numbers for an industry that has struggled with supply and demand dynamics in recent years. If the pandemic continues to depress construction starts, it will translate to slower inventory growth in 2021 and 2022, removing some pressure on supply as more seniors enter the space.

“Beginning in 2021, we [expect] more of a demand response; that will determine occupancy rates,” Mace said.

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