Covid-19 will continue to drag on senior housing operations and net operating income (NOI) until vaccines are widely distributed, and NOI is expected to reach new lows in mid-2021.
From there, demographic trends will result in a gradual rebound in NOI, but low supply barriers will limit growth upside, and NOI is not expected to reach new highs until 2024.
That is according to a new report on the sector from Green Street. The Newport Beach, California-based commercial real estate research and advisory services firm studied historic market trends to inform their projections.
The report revealed that M-RevPAF — the combined change in occupancy and rent — was decelerating since 2016 before occupancy losses attributed to Covid-19 sent it plummeting 5.8% last year. M-RevPAF is expected to decrease by nearly 3% in the first half of 2021, before returning to pre-pandemic levels, Green Street Advisor Senior Analyst Lukas Hartwich told Senior Housing News.
How fast NOI and M-RevPAF rebounds will depend on when demand turns a corner. That will be determined by the availability of coronavirus vaccines and a return in consumer confidence.
“The nuances on the demand side are important to think through,” he said. “That will be a key determinant for when [the industry] turns the corner.”
While a resurgence in demand remains hazy, the outlook for senior housing supply is more clear.
New supply was already moderating prior to Covid-19, but development starts have slowed as developers and owners continue to face constrained lending environments. Hartwich forecasts supply growth decelerating further in the near-term, before rebounding to meet an initial wave of new demand.
New developments in progress prior to Covid-19 should eventually lead to industry-wide NOI growth, but it will not be realized until these projects come online. Another potential impediment to NOI growth is concessions, which could gain favor among operators looking to rebuild occupancy, post-pandemic.
“Given where we are today with occupancy, that’s not a normal and operating environment,” Hartwich said. “There would be pressure on rates, in that case.”
Green Street is the latest firm to warn of an elongated recovery for senior housing. Earlier this month, a report on the sector from BMO Capital Markets (NYSE: BMO) suggested that cash flows and occupancy will not return to pre-pandemic levels until 2025.
BMO’s report was preceded by a consumer sentiment survey from Scotiabank which indicated that senior housing occupancy would not rebound until mid-2021. The survey revealed that 55% of respondents said Covid-19 affected their decisions to move into a senior housing facility later than previously planned.
For those putting off a move, 94% indicated they are waiting at least three months to make a move; 71% would put off a move for at least six months; and 36% wanted to wait at least 12 months. Reasons for delaying included the availability and deployment of vaccines, concerns about rising Covid-19 cases, and assurances that facilities will be safer.