Next year will bring pre-pandemic occupancy levels and potentially “gangbusters” levels of transactions for the senior living industry. Or at least, that is what recent trends in census gains and dealmaking say.

Last week, the National Investment Center for Seniors Housing & Care (NIC) along with NIC MAP Vision released their latest quarterly occupancy report, which showed that the industry is on track to regain pre-pandemic occupancy in the fourth quarter of 2024.

For every 10 units the senior living industry added in 2023, 28 more were occupied in that time. That signals that the wider industry can fill a “significantly higher number of units than were added during the third quarter of 2023,” NIC Principal Omar Zahraoui wrote in a recent blog post.

Given that the industry has spent the last nearly four years chasing pre-pandemic occupancy, returning to pre-Covid numbers would at the very least represent a symbolic milestone. But it could also coincide with an opening of the floodgates for senior living dealmaking, amounting to “gangbusters” levels of M&A, according to the latest analysis from CBRE Vice Chair Aron Will, who is also co-head of the company’s senior housing practice.

“Just like how senior housing did coming out of the [great financial crisis], it’s my strong opinion — and I have a lot of conviction in this — that it will outperform the rest of real estate and become a darling child when it was not so much during the Covid era,” Will said on a recent CBRE Capital Markets webinar.

Nine quarters of growth and counting

Across the industry, senior living operators are regaining occupancy at a steady clip at the tail-end of 2023.

Brookdale Senior Living (NYSE: BKD), the nation’s largest senior living operator with 672 communities in 41 states, on Monday reported its average occupancy rate had ticked up to 78.2% in September, representing nearly two years of consecutive monthly growth on a year-to-year basis, the company noted.

In the third quarter of 2023, average senior living occupancy in the 31 primary markets that NIC MAP Vision tracks rose to 84.4%. Gains were even more pronounced for certain segments in the 68 NIC MAP secondary markets, such as assisted living communities, which have already exceeded pre-pandemic occupancy totals in a “remarkable” 9.8 percentage increase from the hardest days of the pandemic.

The latest average data represents the industry’s ninth straight quarter of occupancy gains — and the trendlines portend more growth to come, according to Zahraoui. If the industry continues to add occupancy at the pace it is doing so today, it will reach pre-pandemic occupancy rate of 87.1% in the fourth quarter of 2024.

“This optimistic outlook is underpinned by the robust demand, limited supply growth, and the strong absorption-to-inventory velocity ratio observed in the market,” Zahraoui wrote.

That said, dynamics within the industry has shifted significantly since 2020, and “the occupancy level of 1Q 2020 may no longer serve as the benchmark for many operators due to the transformative impact of the pandemic,” he explained.

As Zahraoui noted, part of that optimism has to do with the rate of senior living supply growth, which has remained muted in recent quarters as financial headwinds stymied new projects across the country.

The industry’s year-over-year new supply total of 1.3% represents the lowest rate of new inventory growth since 2012. And projects under construction represent about 4.7% of total inventory, also marking the lowest since 2012.

Looking ahead, the industry is expected to continue its upward trajectory, barring any unforeseen complications. NIC’s projection stems from an analysis of absorption rates and inventory growth between the third quarter of 2021 and the same period in 2023.

Adding to the optimism is the fact that residents and their families in 2023 seem more aware of the value proposition of senior living communities than perhaps any time in the past. Studies like the recent one on resident frailty from NIC and NORC help to tell that story.

“The effects of the pandemic continue to reverberate within the industry, impacting operators in various ways,” Zahraoui wrote. “However, the overall trend suggests that the senior housing market is on a positive trajectory, with a renewed sense of its value proposition and purpose in serving the needs of older adults.

‘Gangbusters’ levels of M&A could be ahead

The number of senior living companies and communities changing hands has significantly slowed in 2023 as interest rates and other headwinds continue to make deals harder to close. And while that will likely still be the case for the next 18 months, better M&A days are ahead, according to Will.

Although the senior living industry underwent undoubtedly hard times during the pandemic, the industry’s recent ability to add occupancy and increase resident rates is a significant bright spot compared to the multifamily industry, “which is going negative in a lot of markets,” Will said.

Now, the industry stands at an inflection point between better operations and still-challenged financial markets. In the next 18 months, conditions could shift that narrow the bid-ask spread and create a senior living M&A market that is “gangbusters,” Will said. Specifically, he noted that some communities will have no choice but to sell in the next 18 months as runways grow shorter.

Add to that the fact that there is already a decent amount of pent-up demand for senior living deals and Will expects much busier times ahead.

“I expect a lot of sales of assets in lease-up that are not the valuations people would have hoped,” Will said. “There is going to be some core-plus capital that re-emerges in the space, making relative value plays for senior housing given where it’s priced now — for really, really good stuff.”