The industry has seen a low number of new construction starts in the last couple of years. While that has been a boon for short-term occupancy rates, long-term it could present a problem.
In 2024, there are many old and aging senior living communities on the market that will need to be upgraded or taken off the market in the coming years. At the same time, demand for senior living is growing as the incoming baby boomer generation continues to age. With a current lower rate of new construction and development, the industry could fall short of that demand in the future.
The trend of lower supply and higher demand is expected to last for at least a couple years, according to National Investment Center for Seniors Housing and Care (NIC) Principal Omar Zahraoui. Total senior housing inventory is slated to increase by 4.1% by 2027 – only half of what projected demand growth will be at that time, he said.
Senior housing units are currently being filled at a much more rapid pace than they are being built, with 28 units absorbed for every 10 that are added from between 2021 and 2023. That is compared to seven units for every 10 from between 2017 and 2019, Zahraoui said.
“We anticipate that supply will remain moderate until 2026,” Zahraoui said during a NIC webinar Thursday. “However, unlike the last oversupply cycle, the upcoming cycle … in 2026 or post 2026 will occur at a time with robust demand growth.”
Zahraoui noted that currently 44% of senior housing properties are 25 years or older, not counting recently renovated projects.
Demand for senior living services grew annually at a rate of about 2.6% from 2017 to 2019, but increased an average of 4.4% each year from 2021 to 2023. Zahraoui noted this is likely to be the new norm for the industry.
The number of occupied units in assisted living in 2023 exceeded 2019 levels, representing a faster pace of demand growth, Zahraoui said. Demand for independent living properties in 2023 exceeded 2019 levels by 4%.
“We believe this growth is likely fueled by the continuum of care,” Zahraoui said. “I wouldn’t be surprised if occupied stock for assisted living surpassed that of independent living in the coming years, at least for the primary and secondary markets.”
It currently takes around three years after breaking ground for the average senior living community to open. That is partly why Joe Daniels, vice president of business development and direct supply at Direct Supply Aptura, said now is the time to start new projects.
“That number is only going to maintain the status quo if not increase,” Daniels said. “There is a tremendous amount of opportunity and will continue to be more and more in these markets.”
Daniels added that despite some of the headwinds the sector is facing, there are still “massive opportunities” for development.
Looking ahead, Daniels added there is a need for adaptable buildings that can become different spaces as needed, along with at the minimum of having a basic infrastructure for technology established when the building is being built.
“If we’re not really thinking about the future, thinking about what the guy down the street in their garage is building that could make us fairly irrelevant when we open our doors, we are really doing our building and our community a disservice,” he said.
Companies featured in this article:
Direct Supply Aptura, National Investment Center for Senior Housing & Care
