After weathering the worst of the COVID-19 pandemic, the senior housing sector is bouncing back with a “stellar” first half of the year.
“Many of the nation’s elderly are becoming more comfortable moving back into, or entering, senior housing communities for the first time after delaying plans during the pandemic,” says a new report from Marcus & Millichap. “Some older adults have cited an eagerness to experience the community-based aspects, after an extended period of social isolation. Others urgently need the care-based services that senior housing offers, with the friends and family able to provide at-home care during the early stages of the health crisis now returning to workplaces.”
NIC Map Data Service research shows net absorption in the sector of more than 17,000 units in the first half of the year, a figure that brought the 12-month total to 48,600 units absorbed. That’s twice the number of units relinquished in the prior year.
“The continued upward occupancy trend despite workforce and supply challenges is a positive sign,” NIC COO Chuck Harry said in July. “Today’s economic challenges could present another hurdle for operators, but we cautiously believe that the upward trend in occupancy will continue because the need for senior housing remains strong.”
Marcus & Millichap analysts predict ever-increasing demand as baby boomers age into senior housing: nearly 69 million people are estimated to comprise the generation, and most are entering their 70s soon. The average rent growth across senior housing also ticked up by 4.7% year over year in Q2, the quickest gain in a decade-plus.
Development remains somewhat tepid, with fewer units in the pipeline than in comparable periods in 2015. New construction is most prevalent in the Mid-Atlantic states, the Carolinas, and in high-growth areas across the Southeast and Southwest.
“In the near term, this will mitigate competition between operators trying to restore occupancy,” the report notes. “Longer term, this could be a boon for the sector as an aging baby boomer demographic could push demand past supply.”
But labor challenges will continue to present headwinds for the sector, analysts say.
“The pace of growth is below inflation, meanwhile labor costs are soaring,” the Marcus & Millichap report says. “Operators have significantly increased wages to attract workers, after negative press and health protocols during the pandemic created headwinds. Meanwhile, alternative fields like retail have raised starting pay, presenting competition. Bringing in the necessary staff to restore occupancy will require sizable hikes in labor costs, however, the higher operating expenses are not being met by adequate rent growth.”