Recovery Still ‘Not a Given’ Even as Senior Living Demand Accelerates

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Spurred by steady occupancy gains and favorable supply and demographic trends, senior living operators nationwide agree that senior living demand will explode in the years to come — but capturing that demand is far from a sure thing.

As the boomers loom large over senior living in 2023, operators cannot wait for customers to come to them. They instead need to be well-positioned, with proper leadership and frontline teams in place to capitalize on the influx of new older adults moving into communities. Without diligence in managing expenses, improving labor and refining resident care and services, operators may miss out on the steady recovery happening across the country, even if demand skyrockets.

“You definitely can’t just ‘build it and they will come,'” said Goodwin Living CEO Rob Liebreich. “You’ve got to build it, promote it and continue to improve it, and if you’re fortunate enough, they will come and you’ve got to convince them to come to you.”

That is a view shared by leaders of other operators, including 12 Oaks Senior Living, Christian Horizons, Goodwin Living, Sinceri Senior Living and Stellar Senior Living, all of whom are getting creative to capture demand in their respective markets while not resting on their laurels.

Demand continues accelerating

On the whole, the demand outlook for senior living in the coming years is rosy. And while expenses are still keeping margins at worrisome levels, operators are not finding as lofty challenges rebuilding occupancy as they once encountered only two years ago.

Less than a month ago, the National Investment Center for Seniors Housing & Care (NIC) reported the industry had seen its eighth-straight quarter of occupancy gain across the 31 primary markets tracked by the organization. Welcome Home Software data around selling shows that lead volumes for communities across the country are up compared to 2022, but deflated move-in activity shows that prospects “continue to be difficult to win.”

To better understand the senior living demand landscape, NIC developed a new metric: the absorption-to-inventory-growth (AIG) ratio. The new data point created by the NIC MAP Vision team and Principal Omar Zahraoui offers a detailed glimpse on the balance between demand and supply, going back to 2006.

It’s calculated by dividing the number of newly-occupied units within a given time period by the number of new units added to the market inventory over the same time period. For example, a higher positive ratio shows stronger demand relative to the inventory growth, showing a healthier, more balanced market.

During the second quarter of this year, for every 10 new units added, there has been a net absorption of 45 units, the highest AIG (+45:10) since NIC MAP Vision began reporting the data, with the industry absorbing a “significantly higher number of units” than were added in the second quarter, Zahraoui stated.

“It has been a significant driving force behind the ongoing recovery,” Zahraoui told SHN. “We have more people now in senior housing communities than we’ve ever had.”

A look back into the past shows that long-term demand for senior living has steadily increased over time. From the second quarter of 2006 to the second quarter of this year, senior housing experienced negative absorption in just six quarters, 1Q09, 1Q15 and then four-consecutive quarters during the pandemic (2Q20 to 1Q21), NIC data shows.

It’s no secret that building new units is harder now than at least since the Great Recession, with the Federal Reserve’s resolute stance in quelling inflation, dampening debt markets and rising construction costs only adding to the lack of new development. On the M&A side, brokers and lenders are having to get creative to even pencil out new transactions.

Tracking over 1,500 communities nationwide, WelcomeHome Software reported “stabilized” occupancy trends for the first time since 2020, according to Vice President of Customer Insights Maggie Seybold. The Northeast led in occupancy growth, ending the second quarter with an average occupancy of 84%, while the South and Midwest saw modest gains compared to a “largely stable” performance in Western states, Seybold said.

“We’re in a really fascinating time,” Seybold said. “We had a bit of a tailwind coming out of Covid and it’s likely stabilizing particularly for assisted living and memory care.”

Alexandria, Virginia-based Goodwin Living reported steep occupancy gains within its rental portfolio as its life plan communities remained strong. Rental occupancy has increased since the start of the pandemic, going from 68% to 83% today, CEO Rob Liebreich said in an interview with SHN. Now, the organization has a goal of nearing 90% occupancy this fall.

With conditions still challenging, but improving, Liebreich said Goodwin Living started the year heavily investing in its teams, increasing management skills and reducing turnover by 25%.

While pent-up demand helped spur the beginnings of the occupancy regrowth, Vancouver, Washington-based Sinceri Living reported a higher number of inquiries and interest across its portfolio, according to CEO Chris Belford.

“Demand is continuing to grow,” Belford said. “I think it’s in-part the demographic shifts we’re seeing as an industry, and the lack of new construction has put operators in a really good position to capitalize on that demand.”

Belford noted that occupancy is “hovering in the 80s” with a goal of 90% occupancy being “ideal,” yet elusive.

For Springfield, Illinois-based Christian Horizons, with a portfolio in rural markets came a new hurdle in recouping lost gains from the pandemic: Rebuilding trust in senior living to get people through the doors in a post-pandemic world. To combat reluctance to join, Christian Horizons met with prospects one-on-one in a grassroots effort to restore trust, according to newly-appointed CEO Kate Bertram.

“Our teams were driven from a sales-perspective and it was invigorating to see that improvement,” Bertram said. “Trust is everything to our prospects.”

Dallas, Texas-based 12 Oaks Senior Living saw significant occupancy growth in the second quarter of nearly 5%, something President Greg Puklicz said was “pretty remarkable” for one quarter. Across its entire portfolio, which includes a range of new acquisitions still in stabilization mode, 12 Oaks Senior Living average occupancy is in the mid-70th percentile. Puklicz noted.

12 Oaks’ “stretch goal” for occupancy is 90%, Puklicz added, that could be achieved next year.

“We’re clearly moving beyond the recovery road and into a normalization, stabilization position now,” Puklicz said. “We’re happy to see that level of growth.”

Puklicz said that success can be directly attributed to his team’s sales teams and operations leaders, even as care staffing remains a thorn in many operators’ sides. In the Dallas area, Puklicz noted steep pay rate pressures, in some cases up 20% for certain nursing positions, remains a sticking point. That led to 12 Oaks enhancing recruitment capabilities, while focusing on training, retention and onboarding of staff.

While fighting challenges on staffing, Puklicz added that the “most important element” of capitalizing on demand is being able to create “authentic connections” between sales teams and prospects to ease the transition process of adults reluctant to leave their homes for congregate living.

Stellar Senior Living Senior Vice President Adam Benton said that, given the crosscurrent of supply and demand at play in 2023, “it’s a phenomenal time to be investing in senior housing.”

“Times like these haven’t been seen in at least a decade in terms of various opportunities for values versus future growth,” he added.

Benton noted that for Logan, Utah-based Stellar, with construction costs remaining high for the foreseeable near-term, demand will keep “piling up.”

“You’ll see operators will be able to charge more for rent and be able to expand margins meaningfully again while increasing occupancy,” he said. “That’ll increase valuations until it’s feasible to build again.”

Recovery still ‘not a given’

In the middle of 2022 amid a small spike in new senior living construction, Beth Mace — formerly NIC Chief Economist, now special advisor to the organization — noted that developers should “be careful” as they worked on new projects.

“There is a lot of interest in developing senior housing, and there are absolutely a lot of opportunities to develop it,” she said in 2022. “Just keep in mind that there are a lot of competitors, and a lot of other operators and businesses that want to do it.”

While the senior living industry feels almost worlds apart in the third quarter of 2023 than it did over a year ago, Mace’s warning still holds true: Operators cannot simply wait for new demand to walk through the door, even if they have the shiniest new community on the block. It takes work.

That is also the opinion of Liebreich.

“It’s not a given that you will recover occupancy,” Liebreich said. “You have to invest a lot of energy, time and find the right people to help us move forward. Our teams have made a big difference for us.”

As new customers enter the market, older adults, part of the baby boomer generation, are starting to impact senior living sales trends, Seybold noted. That’s due to boomers being more choice-driven and tech-savvy compared to those who came before them. WelcomeHome data showed that high-volume lead generation across the country was driven by an increase in online and aggregator leads.

Lead-to-move-in conversions have remained deflated compared to last year, driven by increased lead volume and “stubbornly low” move-in rates with an average of 3.2 move-ins per month per 100 units versus 3.8 move-ins per 100 units in the same period last. year, WelcomeHome data shows.

“Prospects are harder to win,” Seybold said. “There’s a rebalancing happening where sales teams have to learn how much time to allocate to online leads versus nurturing in-person referrals…I think we’re in a transition and many operators are still getting used to it.”

Still, Libreich said he felt that demand would continue for the industry as long as “we continue to provide value” as operators. In the months and years ahead, Belford said he expects demand for senior living in the next “two to three years” will continue.

“We think it’s going to continue to grow and we’re excited about that,” he said.

While the second quarter’s 5% growth in census may be an outlier, Puklicz believes that 3.5% growth is “what we’re going to see” across the 12 Oaks portfolio, with a focus on pricing in the fourth quarter of this year.

“We’re going to be seeking 10% to 12% rate increases,” Puklicz said. “I don’t know if we’re going to get all the way there, but we’re going to try and get as close as we can to those numbers.”

As debt markets improve and operators improve lending relationships, while seeing new investment into the space, Bertram said the senior living industry’s path to recovery is laden with opportunity.

“We’ll be back,” Bertram said and we’re already seeing improvements, while demand is going to increase in the future.”

Benton, ever-bullish, said he believes demand will accelerate rapidly over the next two decades.

“We’re at the very beginning of a 20-year growth cycle and that’s going to keep growing with the baby boomers aging, people living longer and a higher utilization rate of those in senior living 75-years and older,” Benton added.