Evidence of a market peak continues to build, as both occupancy continues to meet resistance at its current level. While seniors housing occupancy during the third quarter rose 20 basis points to 89.9%, those gains are seemingly all seasonal in nature and likely not indicative of an underlying improvement. After running the same seasonal adjustment procedure the government uses to adjust data such as the unemployment rate, occupancy was essentially unchanged from the second quarter.
Construction and supply continue to remain hot topics in seniors housing, especially in assisted living, where construction exceeded 6% of existing inventory during the second quarter of 2015. The risk for older properties is in the potential loss of market share, which could be siphoned by new competitors.
For the first time during the recovery, seniors housing experienced a sizeable rate of inventory growth, which surpassed absorption and caused occupancy to slip 20 basis points during the quarter. During the second quarter, inventory grew at a 2.7% annual rate, its fastest rate of growth since the second quarter of 2009 when inventory grew at a 3.9% annual rate. In the previous 22 quarters, spanning back to the fourth quarter of 2009, inventory growth never exceeded a 2.0% annual rate. After recording its weakest reading since the height of the recession during the first quarter of 2015, absorption rebounded to a rate more reminiscent of what we’ve observed over the past few years. During the second quarter of 2015, absorption came in at an annual rate of 1.9%, up significantly from 0.2% during the first quarter. While it represented acceleration from the first quarter, it still was on the weaker side of where absorption rates have trended since mid-2013.
In light of REIT Week, NIC wanted to share valuable insight into the impact of health care REITs related to seniors housing and care. Health care REITs own and operate properties including senior housing and skilled nursing properties, hospitals and other medical office buildings. Low interest rates, attrative financing, solid returns and robust demand are all factors that indicate that health care REITs will continue to pursue seniors housing and care assets.