Senior living construction is cool across the United States, with financing tough to come by and construction costs high, while the economy remains uncertain.
Yet, development and investment is proceeding, and the long-term demographics still tell a clear story of huge incipient demand. Certain metros — such as New York City and Washington, D.C. — have garnered attention for a slew of high-profile projects underway or recently opened.
But beyond the biggest metros and development hotspots, some markets are moving into the spotlight thanks to factors such as their expanding economies, senior housing fundamentals, and overall real estate investment prospects as reflected in reports and surveys such as the Urban Land Institute’s recently released “2023 Emerging Trends in Real Estate.”
The following four markets are worth watching as the senior living sector continues its recovery from the depths of Covid-19, and investors and operators try to identify the best places for growth in challenging times.
Omaha, Nebraska
Transforming Age recently announced Omaha, Nebraska, as the site of a second headquarters. And the nonprofit joins a few other notable Omaha-based senior living and care organizations — including home care giant Home Instead (acquired by Honor) and senior living provider Heritage Communities.
While the market has picked up in recent years, it was not always that way, according to McNair Living Managing Principal Ryan Haller. In a former life, Haller headed up development for Avamere and its development arm. After the company chose Omaha as among the first two sites for the development of its then-burgeoning Ovation concept, Haller told SHN in 2020 that some industry colleagues initially “raised their eyebrows” at the move.
But he pointed out that, historically, markets like Omaha have weathered downturns and produced steady business results, making them reliable — albeit perhaps unsexy — markets for senior living.
The city ranked No. 66 in overall U.S. real estate prospects in Urban Land Institute’s most recent Markets to Watch List, which is part of its annual real estate trends report. The city and surrounding area are also among the nation’s “boutique” markets for real estate, according to the report.
In the third quarter of 2022, the market carried a 86.2% occupancy rate, which is higher than the most recent industry average of 82.2%. Before the pandemic, the market carried an occupancy rate of 91%.
Senior living construction as a share of inventory registered at 4% as of the third quarter of 2022, which comes in below an average of 5% for the 31 NIC MAP primary markets.
Though it is not seen as especially affluent compared to markets like New York City or Los Angeles, Omaha is home to billionaire Warren Buffett, and TD Ameritrade Founder Joe Ricketts also hails from the state. In fact, the city is among the top in the nation for per-capita billionaires and Fortune 500 companies, per USA Today.
Omaha is also a growing city, with a metropolitan area that grew about 12% between 2010 and 2020, according to census data. And the Omaha city government expects the metro area will surpass 1 million residents by 2024.
Pittsburgh, Pennsylvania
The slowdown in senior living construction that occurred during the Covid-19 pandemic has been particularly dramatic in Pittsburgh.
In 2019, construction as a share of inventory was 10% in Steel City, according to NIC MAP Vision data. By Q2 2022, construction as a share of inventory was nearly zero.
So, developers could have an opportunity to launch projects that will open with little competition from other new communities a few years from now. And there are indications that prospects could be bright for Pittsburgh and nearby counties.
Between 2021 and 2022, the city gained more than 10 spots on the Urban Land Institute’s Markets to Watch List, earning the No. 41 rank for overall real estate prospects.
Development projects in a 10-county area in and around Pittsburgh surpassed $2.5 billion in 2021, which was an increase of more than $1 billion over the 15-year average, according to the Allegheny Conference on Community Development. This was the largest increase on record.
Job creation increased nearly 30% between 2020 and 2021, with projects from companies such as Amazon and Express Med — as well as the modernization of the Pittsburgh International Airport — fueling the growth, as reported by American City and County.
ULI categorizes Pittsburgh as an affordable “eds and meds” market. Education and health care services account for 22% of the economy’s jobs, Pittsburgh Quarterly reported.
The city’s many colleges and universities — including Carnegie Mellon, University of Pittsburgh and Duquesne — could create opportunities for senior housing partnerships and intergenerational living. As a health care hub, the city could be a fruitful location for senior living providers to forge partnerships with health systems and payers, and innovate in terms of how services are delivered.
And in terms of demand for senior living, the city has one of the highest aging populations in the United States — a fact touted on the Greater Pittsburgh Convention & Visitors Bureau website. In fact, Pittsburgh led the nation in natural population decline between 2020 and 2021, with more deaths than births, TribLive reported.
Pittsburgh also presents some notable drawbacks and challenges, perhaps suggesting why senior living construction fell off so sharply. Notably, labor market conditions are tough.
As of spring 2022, the region had the slowest employment growth among the 40 largest U.S. metro areas, per an analysis of Bureau of Labor Statistics data. This stat might be tied to the aging population, TribLive reported, with retirements more common than in other parts of the country during the pandemic. And the city is struggling with a shrinking population that threatens economic growth.
And while understanding sub-market dynamics is key in any senior living development endeavor, the pressure is really on in Pittsburgh. About 80% of senior living residents in Pittsburgh come from within a 5-mile radius, compared with 60% of residents in Raleigh coming from a 5-mile radius, according to a report from Vision LTC and SHN.
Knoxville, Tennessee
ULI identifies Knoxville, Tennessee, as another “boutique” market for investment and development.
Prior to the pandemic, the market was semi-active for new development, with 8.3% construction as a share of inventory, according to NIC MAP Vision. As of the third quarter of 2022, that number had effectively dwindled to zero.
Some of that might have to do with the fact that the pandemic and its pressures seem to have hit the market hard. But it has rebounded.
In the first quarter of 2021, operators in the market carried an average occupancy rate of 72.1%. Fast forward to the third quarter of 2022, the market carried an average occupancy rate of 84.5%, according to NIC MAP Vision.
One quirk of the market is that it carries urban growth boundaries, meaning certain areas are earmarked for urban development specifically. For senior living developers, these boundaries can be a sizable barrier to entry. But for those already operating in those markets, those barriers can come as an advantage and boost pricing for existing communities.
The city is among the fastest-growing in the state of Tennessee and the home of University of Tennessee. And in 2022, Forbes ranked it as among the top 25 places in the U.S. to retire thanks to its median home price of $308,000 along with “abundant doctors, comfortable climate, good air quality, strong economy, [and] no state income or estate tax.”
At the same time, businesses in the area are reported to have experienced difficulty hiring earlier this year thanks to an imbalance in the number of jobs to workers. If those conditions continue, that could be a tough hurdle for operators to vault over given their own difficulties staffing communities.
People who live in the area also have struggled with inequalities related to medical debt, with people of color more likely to carry medical debt than their neighbors. Social implications aside, it’s no secret that older adults struggling with medical debt will have fewer dollars to put toward senior living; and the disparity in debt means operators there risk serving only one segment of the population.
Piedmont Triad of North Carolina
The Piedmont Triad comprises Greensboro, Winston-Salem, and High Point, North Carolina; the state’s third, fifth and ninth biggest cities, respectively. It is not to be confused with the Research Triangle, which includes the Raleigh–Durham area.
Although it’s no secret that Raleigh/Durham and Charlotte have been hot for new development and investments, there are signs that those markets may be cooling somewhat; developers with their eyes on North Carolina have reasons to watch the Piedmont Triad with particular interest.
Raleigh was the top-rated market in ULI’s annual emerging trends report in 2021. This year, the city came in at No. 6. While still an impressive showing, Raleigh and other red-hot markets such as Nashville — cities dubbed “supernovas” by ULI — have seen issues such as congestion and rising costs follow their recent rapid growth, the report stated.
The Piedmont Triad may look increasingly attractive by comparison. Cost of senior living in the Piedmont Triad was about $300 per month cheaper than Charlotte, about $400 per month cheaper than Durham and a whopping $760 per month (16%) cheaper than Raleigh, according to NIC MAP Vision asking rent data. In the third quarter of 2022, the average asking monthly rates ticked up to $3,918, representing a gain from before the pandemic of a little more than $3,700 on average.
And the region also won headlines in 2022 for some impressive economic development news. At the start of the year, Boom Supersonic announced a $500 million investment at the Piedmont Triad International Airport, with plans to create more than 1,700 jobs. In August, Boom took an option on a second parcel at the airport, located in Greensboro.
Also in August, Toyota announced a $2.5 billion expansion of a plant in Liberty, North Carolina. With that, total employment at the plant — Toyota’s newest in North America — is on track to reach about 2,100 people.
And while such investments promise to draw new and younger residents, the area also is known as an attractive choice for retired older adults. In the summer of 2022, Kiplinger recognized Winston-Salem as one of seven “standout places to retire.” Winston-Salem also appears on Forbes’ Best Places to Retire list.
The Greensboro and Winston-Salem markets carried a senior living occupancy rate of 88.3% in the third quarter of 2022, according to NIC MAP Vision data. Although the market still has ground to make up to reach its pre-covid rate of 91.7%, the trends are moving in the right direction.
Construction in the Greensboro and Winston-Salem markets accounted for 4.5% of the total senior living inventory in 3Q2022, representing a rebound from its Covid low of 2.5% in 2021. This while new construction accounted for more than 17% of the inventory in Raleigh and more than 9% of the inventory in Charlotte, per NIC MAP Vision.
As the entire state’s boom continues, the Piedmont Triad may be slyly ready to play a significant role in the senior living marketplace moving forward.
This article included contributions from Nick Andrews and Tim Mullaney
