A new NIC MAP Vision report has good news and bad news for the senior living industry.
The good news is that current penetration and unit absorption rates show the industry is on track to hit 90% average occupancy by 2026. Beyond that, demand is only expected to continue to increase as the baby boomers grow older.
The bad news is that, beyond 2026, current development rates are not enough to meet demand. If the industry does not increase its investments in senior living development by at least 3.5 times faster than its current pace, a $275 billion development “supply gap” will emerge by 2030.
“As we move past the challenges of the pandemic, labor shortages, and high-interest rates affecting capital markets, the senior housing market presents a prime investment opportunity,” said NIC MAP Vision CEO Arick Morton. “We see the longer view. The demand is high and the current supply insufficient, making it an ideal time for investment in this sector.”
Challenges getting financing for new deals led to a 40% decrease in transactions in 2022 and 2023.Those challenges also sent the rate of new construction falling to just 0.2% of total inventory in 2023.
But the report’s authors noted that senior living development must increase 3.5 times compared to the current pace.
“With only 26,000 units being developed annually compared to the highest rate of 56,000 units in the 21st century, the industry is on track to fall 50 percent short of the required inventory by 2025. Alarmingly, only 25 percent of the necessary units have been developed to date,” a press release about the report reads.
That is exacerbated by the long time for completion for new projects, which developers in the past have told Senior Housing News often averages two to three years for new construction.
The rate of labor cost growth has in 2023 fallen short of the pace of rent increases, giving operators more ability to decompress margins. Last year saw an average NOI growth of 4.6% across the industry based on an analysis from NIC MAP Vision.
“Operators are feeling the absorption, so they are optimistic about strong revenue for the foreseeable future,” a press release about the report reads. “With this market confidence in occupancy and operating margin, operators are in a strong position to reignite their growth strategy with new developments.”
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