Why Senior Living Leaders Are Divided On How Fast Pent-Up Demand Will Restore Occupancy

Since the early days of the pandemic, some senior living industry leaders have expressed optimism that Covid-19 is creating pent-up demand that will break through once coronavirus vaccines are distributed and the public health crisis comes under control.

But as a vaccine appears imminent, the evidence and outlook on pent-up demand is mixed, with some provider executives and other industry analysts bullish about a swift bounceback and others predicting a longer recovery timeframe.

Those bullish on pent-up demand contend that Covid-19 has delayed moves to senior living, and that ultimately this could result in rapid occupancy gains, particularly as older adults develop more pressing needs that can no longer be met at home.

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“What we have heard from numerous operators is [adult children realize caring for parents is] much harder than they had expected,” Tom Herzog, CEO of real estate investment trust Healthpeak (NYSE: PEAK), said in May. “Some of these adult children worry about getting sick themselves and realize that there’s no way that their parents are able to care for themselves. There certainly is a backlog … waiting to get into these communities.”

But while health needs may compel move-ins, and a vaccine will surely help mitigate fears about the infection-related risks of communal environments, senior living providers will have to restore consumer confidence that has taken a hit — and pent-up demand would have to be particularly robust to rapidly restore occupancy levels that for some organizations have plunged.

The industry is facing historic low occupancy rates during the pandemic. The average occupancy rates among the 31 primary markets tracked by the National Investment Center for Seniors Housing & Care (NIC) fell to 82.1% in the third quarter of 2019. That is 5.6% lower than the first quarter. Assisted living, especially, is struggling with occupancy, ending the quarter at 79.1% — down from 85.7% in the first quarter. And occupancy has continued to slide this quarter, with the largest provider in the United States — Brookdale Senior Living (NYSE: BKD) — reporting November weighted average occupancy of around 73%.

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But sales data does offer reasons to be optimistic, particularly as active adult communities have exhibited strength; this suggests that demand remains resilient even among older adults who do not have pressing care needs. And Alex Fisher, co-founder and president of senior living sales solution Sherpa, believes that pent-up demand is palpable.

“We’re seeing a lot of people waiting for [safety] protocols to be lifted to actually pull the trigger [on a move],” she said.

Mixed perspectives on a bounceback

Every executive contacted by Senior Housing News — leaders with operating companies, sales and marketing firms, and financial analysts — believes that some pent-up demand exists. But with the United States in the throes of another wave of positive coronavirus cases and vaccines set to roll out to health care workers and vulnerable populations soon, the horizon for when that demand will translate into move-in velocity varies.

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Aegis Living CEO Dwayne Clark expects to capitalize on pent-up demand as soon as winter gives way to spring. The Bellevue, Washington-based assisted living and memory care operator reports strong pre-lease volume at six communities under development — with one development set to open over a year from now already 25% pre-leased. This level of pre-leasing is unprecedented, he told SHN. 

Aegis is already preparing for another 90 to 100 days of intense pandemic preparedness, at which point Clark predicts significant herd immunity could be in place thanks to vaccinations. Combined with relaxing enhanced safety guidelines and the gradual reopening of communities to non-essential personnel, this should give prospective residents the confidence to make the move to senior housing.

Also, signs of an impending occupancy surge extend to Aegis’ 32 operational communities, located in Washington, California and Nevada. The company’s sales and marketing teams are reporting prospects are committed to a move, but want to see what the environment resembles after vaccines become widespread and restrictions are loosened, according to Clark.

“It’s one thing to move from your 3,000 square-foot house into a beautiful retirement center and make new friends. It’s another to move from your 3,000 square-foot house into a 700 square-foot apartment and be isolated,” he said.

When that demand eventually flows back to communities, that will benefit strong organizations with solid operations and ample financial reserves in place to have weathered short- and mid-range struggles.

“I think this [recovery] is going to be a hockey stick: come late spring and summer, we’re going to say, ‘My God, we had 10 move-ins this week,’” he said.

Randy Richardson, president of Vi, is encouraged by the results of a virtual marketing campaign the Chicago-based operator launched in July to kickstart lead generation. New leads have improved every month since as more communities relaunched sales efforts, and by November, Vi was selling at a pace near pre-Covid levels.

“It tells me that people still have interest in our product, and they have a desire to move forward,” he said.

Vi is known for its portfolio of 10 luxury continuing care retirement communities (CCRCs), located in Florida, South Carolina, Illinois, Colorado, Arizona and California.

But another leader in the sector — Randy Bury, CEO of the Evangelical Lutheran Good Samaritan Society — is anticipating a longer wait for occupancy to recover. Sioux Falls, South Dakota-based Good Sam is one of the largest nonprofit senior living providers in the United States, operating 153 locations across 24 states.

“I don’t think our spigot is going to just open up again,” he said. “There’s going to be a lag while people wait and see what’s going on in these facilities.”

Older adults who are healthy enough to defer moves to senior living may decide to “bide their time,” remaining at home or living with family members for another few months, Bury anticipates. Insofar as the pandemic has increased the number of people working from home, that might also play a role.

“If they’re working from home, it’s a little bit easier to have mom or dad in the house and kind of keep an eye on them and provide basic services that they need,” he said. “And so maybe it’s pretty easy for them to delay a move into assisted living.”

That perspective might run counter to what Healthpeak’s Herzog said back in May, about adult children recognizing the difficulties of caring for their parents. As with so many issues related to Covid-19, the reality might be somewhere in the middle — but Healthpeak also is not staking its future on a quick senior housing recovery. In fact, the pandemic has spurred the company to try to sell the majority of its senior housing assets.

Analysts at Scotiabank are also more bearish on the speed of a recovery, based on recent findings from a consumer survey that the bank conducted. While narrow in scope — capturing responses from 264 people — the survey reinforced the notion that prospective residents might take a wait-and-see approach.

Scotiabank’s survey revealed that 94% of respondents are waiting at least three months to make a move; 71% are holding off a move for at least six months; and 36% wanted to wait at least 12 months. They cited availability and deployment of vaccines, concerns about rising Covid-19 cases, and assurances that facilities will be safer as reasons affecting their decisions.

Furthermore, 70% of respondents believe they are more likely to contract Covid-19 in a senior housing facility versus living at home, and 55% said the pandemic affected their decisions to move into a senior housing facility later than previously planned.

“We model some pent-up demand benefit in mid/late 2021 from people that delayed move-ins this year; we estimate 50% of these delayed move-ins will return during the 18-month period starting July 2021,” Analyst Nick Yulico and Associate Joshua Burr wrote.

Talya Nevo-Hacohen, EVP and chief investment officer with Sabra Health Care REIT (Nasdaq: SBRA), also believes that “real, measurable time” will be needed for senior housing to recover. Much depends on consumer psychology, in terms of when people again feel comfortable to move in, but she also pointed out that the pandemic is complicating typical move-in patterns in other ways.

For example, in a typical year, families gather for the holidays, and often this leads adult children to realize that their parents’ needs have increased, driving subsequent moves to senior living. But Covid-19 is preventing family gatherings this year, disrupting that usual pattern, she noted Thursday during a webinar hosted by Marcus & Millichap.

When trying to determine when a senior living recovery will occur and how quickly occupancy will bounce back, there are many “interesting factors that run contrary to each other,” she noted. In her opinion, occupancy will not hit a bottom until sometime in Q2 2020, and that it is “reasonable” to expect occupancy to be largely recovered by 2022.

“It could be that I’m a little pessimistic,” she acknowledged. “Maybe it really starts to turn around at the start of the second quarter, because the impact and optimism around implementation of the vaccine really changes people’s view.”

How 2020 move-ins compare to 2019

Findings from the Scotiabank survey indicate that the pandemic has made consumers think twice about the safety of communal living. Another survey, conducted last June by ProMatura and the American Seniors Housing Association (ASHA), also revealed some erosion in consumer confidence.

ProMatura contacted households led by someone at least 75 years old with annual income of at least $35,000. Out of this group, about 37% said they had a more negative view of assisted living since Covid-19 began to spread across the country.

The reputational damage to senior living arose in part because of media reports that conflated assisted living with skilled nursing facilities, which were harder hit by Covid-19. Senior living providers have taken steps to counteract this bad press and otherwise reassure consumers that communities are safe places. And the good news is that sales data has shown positive trends as the pandemic has progressed.

Since the initial disruption caused by Covid-19 in the spring, sales conversion ratios have steadily improved. Sherpa’s assisted living clients report sales to be down about 20% on average, compared to last year, Fisher said. That might sound dire but is far better than what some people expected based on numbers at the beginning of the pandemic, when sales inquiries were down 41% year-over-year.

As restrictions on communities lift and vaccinations become more widespread, Fisher expects sales in February 2021 to be on par with, if not match, this year’s numbers.

She attributes this to sales teams focusing on nurturing existing leads, some of which have deferred moves. These prospects began the sales journey prior to the pandemic, when operators were able to conduct physical tours of communities.

“They came to [providers] because they were already experiencing difficulties in their current living situation,” she said.

Data from Enquire’s clients reveal similar trends compared to 2019, Chief Revenue Officer and Co-Founder Erin Hayes told SHN. Move-in activity in August and September, notably, were markedly improved from their April nadir. Digital traffic, meanwhile, increased between 50% and 100% throughout the pandemic for many of its clients.

As more communities accepted new residents, move-in velocity among Enquire’s clients fell 13% to 15% below last year’s numbers, on a monthly basis. And October’s numbers are poised to fall within that range, as well.

“I’m OK with that,” Hayes said.

A Place for Mom uses Google keyword search data to measure interest in senior housing, CEO Larry Kutscher told SHN.

“It allows us to see how many people are in the market. We can see the market size changing much more than it used to,” he said.

March and April revealed significant softness in the market. Once the industry entered the management phase of the pandemic, however, the data indicated that more customers visited the platform to begin the sales journey.

That comports with data that Gunish Seth, agency development manager at Google, shared at the virtual LeadingAge annual meeting last month. Searches for senior living — that is, searches for terms such as “senior living” as well as for specific company names — were at a three-year high in February 2020, dropped to a three-year low in April 2020, but then rebounded as the pandemic progressed. Seth anticipates that senior living searches will be back around around the three-year high by February 2021.

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As customers were better informed on the coronavirus, it became less of a factor in their decision to move to senior housing, Kutscher noted. According to APFM’s November family survey, 87% who moved a loved one into senior housing indicated that Covid-19 did not impact their decision, suggesting those who have moved did so out of urgency with higher acuity needs.

But 48% of respondents indicated that the pandemic continues to impact their decisions to hold off moves.

“We hope and expect that some of these families will re-enter the market as Covid becomes less of a concern — especially with regards to the ability to visit their loved ones regularly following a move,” Kutscher said.

Active adult resilience

As Kutscher’s comments indicate, the fear of isolation — more than the fear of contracting Covid-19 — might have been the biggest concern holding back senior living move-ins during the pandemic. It’s an idea that Aegis’ Clark subscribes to.

“That is the big downer, it’s not so much they’re waiting for the vaccine … they just don’t want to be isolated for two weeks,” he said.

Further supporting this idea is the perhaps surprising strength of active adult communities. Surprising because — as a senior housing setting that is not needs-based — active adult might have been most susceptible to consumers deferring moves until the pandemic was well past. But isolation protocols have been less strict in these settings, given that they do serve independent older adults.

Data from Enquire and Sherpa indicate that independent living and active adult are achieving better sales momentum throughout the pandemic than higher levels of care, where the demand might be more pent-up, corroborating anecdotal evidence from providers. Credit rating agency Fitch also recently credited resilient independent living occupancy as one factor contributing to a stable 2021 outlook for nonprofit life plan communities. And, NIC data shows that independent living occupancy has declined 5 percentage points since March versus a 6.4 percentage point decline for assisted living. This is encouraging insofar as it shows residents did not move out of independent living en masse to escape isolation measures.

The active adult sector is performing especially well. According to Sherpa data from November, move-ins among the segment are two times higher than other care segments, CEO Pedro Soares told SHN.

Customers exploring a move to active adult are weighing the advantages of the lifestyle against concerns about isolation from families and friends, and finding it to be favorable, especially as looser restrictions allow for families to safely visit communities.

“People are deciding that if they can move into active adult, where there may be a nice meal plan, they can socialize a little bit better than they can today, and their families can still come visit, they’re going to do that,” he said.

Fisher attributes the success of active adult to sales teams aggressively working existing leads and overcoming concerns from customers and their families that they will be entering safe living environments. This underscores an ongoing issue within the industry: converting inquiries into sales.

“We need to get better at sales and understand how to convert [a lead],” Fisher said. “[Covid-19 has] changed the way that we’re selling.”

The strength of active adult fuels hope that Covid-19 did not deal a lasting blow to consumer perceptions of communal living, and that the pent-up demand for settings that offer higher levels of care will materialize once isolation measures can be lifted.

While while executives continue to read the tea leaves, Good Sam’s Bury believes that only time will tell how much pent-up demand is in the market and how quickly occupancy will recover. He said he can make an argument for independent living recovering more quickly or for assisted living coming back more quickly.

“I think it’s all speculation right now,” he said. “I don’t think we’re going to know for sure until we get into this, in ‘21.”

Reporting contributed by Tim Mullaney and Tim Regan