Insights in Seniors Housing & Care
NIC recently relaunched its popular Leadership Huddle webinar series to address today’s evolving market conditions. In the first Leadership Huddle webinar of 2023, held on May 2, NIC Chief Economist, Beth Mace, presented the NIC Blue Book, addressing current trends, challenges, and opportunities in the senior housing industry. Mace provided insights on the broader economy, inflation, Fed policy, interest rates, the potential for a recession in the next twelve months, and the current job market.
The Federal Reserve’s response to addressing the highest inflation rates in 40 years has been to push interest rates up quickly and steeply to avoid embedding inflation into the expectations of consumers and businesses. Mace pointed out the impact of the rising interest rates on GDP growth, which saw a significant deceleration in the first quarter of 2023. The labor market, however, has remained strong, with the unemployment rate hovering between 3.4% to 3.6% for the past several months. Nonetheless, cracks in the job market are starting to emerge, with job openings declining, quit rates dropping, and layoffs increasing.
Mace noted evidence of improvements in the senior housing job market, with the use of temporary agency workers starting to decline, and the level of jobs in assisted living now above their pre-pandemic peak. However, jobs in skilled nursing are still well below where they were pre-pandemic, and the number of workers in skilled nursing has been declining for quite some time.
While senior housing occupancy rates are still lower than pre-pandemic levels due to new supply coming into the market, the number of actual occupied units for senior housing is as high as it has ever been. The occupancy rate is still four percentage points below its pre-pandemic level, but net absorption has more than made up for the loss of occupied units experienced during the pandemic. Growth in wage rates is putting upward pressure on operators' expenses, but positive revenue growth in asking rents for assisted living and independent living is providing some relief. To maintain a stable labor force, operators are focusing more on culture, loyalty, and education, among other strategies.
The lending environment in the commercial real estate industry is becoming increasingly difficult as interest rates rise, bank borrowers face greater scrutiny, and banks address greater regulatory pressure. Construction financing is very difficult as well, and development has also been limited due to supply chain disruptions and a shortage of skilled labor. She noted that new development is likely to be limited in the near future, but that there could be opportunities for redevelopment and repurposing of existing properties.
In addition, there is uncertainty around the cost and availability of agency debt, which has historically been a significant source of financing for the industry. Transaction volumes have been low in recent months, with many businesses waiting on the sidelines to see where values are going to end up.
Despite today’s challenges, there is reason to be optimistic about the long-term prospects for the senior housing industry. Market fundamentals are improving, and demographics are favorable. Mace noted that the value proposition of senior housing has never been better, with more people focusing on wellness and being in an environment that supports wellbeing. She urged operators and investors to focus on the fundamentals of the market and to be patient in their approach.
A replay of the May 2 Leadership Huddle webinar is available here.
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Join us for the next Leadership Huddle webinar on Tuesday, May 23, at 2:00 PM as NIC Chief Economist, Beth Mace, leads a discussion on current market conditions with Aron Will, Vice Chairman and Co-Head of National Senior Housing at CBRE Capital Markets, Kris Woolley, Founder and CEO at Avista Senior Living, and Steve Blazejewski, Senior Portfolio Manager and Managing Director at PGIM Real Estate. Learn from these experts who work in the senior housing markets every day. Registration is complimentary.
The National Investment Center for Seniors Housing & Care (NIC) is a nonprofit 501(c)(3) organization whose mission is to support access and choice for America’s seniors by providing data, analytics, and connections that bring together investors and providers.
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