Insights in Seniors Housing & Care
By: Caroline Clapp | December 28, 2022
This commentary drills deep into recent performance of the Secondary Markets, examining the overall performance and composition of the Secondary Markets in aggregate and in comparison to the Primary Markets.
The Secondary Markets tracked by NIC MAP Vision have benefited in recent quarters from recovering strength in demand with limited new supply, driving occupancy closer to pre-pandemic levels for the Secondary Markets than that of the Primary Markets. New Orleans, LA (up 13.6%); Knoxville, TN (up 12.4%); and Baton Rouge, LA (up 12.2%), in particular, stand out as markets that have recovered the most following occupancy declines during the pandemic. All three markets were already experiencing negative absorption before the onset of the pandemic, and the health care crisis accelerated this trend. Absorption turned positive in these markets more recently, and the limited new supply arriving online drove occupancy to rebound.
Source: NIC MAP® Data, powered by NIC MAP Vision
Supply, Demand, and Occupancy Rate Patterns. The exhibit below illustrates the pattern of inventory growth, net absorption, and occupancy for the Secondary Markets in aggregate. The recovery in property market fundamentals for senior housing began in the second quarter of 2021 and has strengthened in recent quarters. In the most recent data available from the third quarter of 2022, net absorption was the second highest on record at 4,655 units. At the same time, inventory growth in these 68 metropolitan markets totaled in aggregate only 473 units, which was the weakest inventory growth in the time series of the data that goes back to 2008. As a result of these improving supply and demand fundamentals, the occupancy rate for the Secondary Markets was only 3.0 percentage points below its pre-pandemic level of 87.0%, better than the 5.0 percentage point spread for the Primary Markets.
Source: NIC MAP® Data, powered by NIC MAP Vision
In terms of demand, the number of occupied units for the Secondary Markets fell by 22,950 on a net basis from the first quarter of 2020 through the first quarter of 2021 as the health care crisis weighed on demand for seniors housing. Since the recovery in demand began, however, the number of occupied units has moved beyond its pre-pandemic level and stood at an all-time high of 308,554 units at the end of the third quarter, more than 1,100 units above the previous peak. This robust absorption of units speaks to the value proposition of seniors housing and its appeal to families that need the services and care provided by senior housing. More broadly, the value proposition provided by seniors housing includes socialization, security, engagement, room and board, care coordination, as well as lifestyle and wellness programs that support a high quality of life.
Source: NIC MAP® Data, powered by NIC MAP Vision
In terms of new supply, the number of senior housing units under construction at the end of the third quarter in the Secondary Markets stood at 15,669 (152 properties), equivalent to 4.3% of existing inventory. This level of construction is down from a recent peak in the third quarter of 2018 of 23,611 units (253 properties) – which totaled 7.0% of existing inventory at that time – and is lower than the 5.0% of inventory under way in the Primary Markets. Meanwhile, construction starts have also been limited during the third quarter and totaled only 553 units across the entire 68 Secondary Markets. (Note, however, that construction starts data often gets restated as more information is collected and is thus subject to change).
Source: NIC MAP® Data, powered by NIC MAP Vision
Source: NIC MAP® Data, powered by NIC MAP Vision
Secondary vs. Primary Markets Comparisons. When evaluating existing inventory, the share of non-stabilized inventory1 (a measure of how much recent inventory is not yet filled) is lower for the Secondary Markets (3%) than the Primary Markets (5%). This is due to the fact that a larger amount of new supply that has been delivered in the Primary Markets in recent quarters.
Source: NIC MAP® Data, powered by NIC MAP Vision
Separately and interesting to note is that the penetration rate for the Secondary Markets in the third quarter is higher than the Primary Markets at 11.6% versus 10.8%, respectively, indicating that seniors housing among households age 75+ is possibly slightly more accepted within the Secondary Markets than within the Primary Markets.
Meanwhile, many other measures of seniors housing inventory indicate that the Secondary Markets are quite comparable to the Primary Markets. For example, the distribution of properties by age is comparable to that of the Primary Markets, with roughly 46% of units within the Secondary Markets 25 years or older, compared to 43% of the Primary Markets’ inventory. Properties 2 to 10 years and 10 to 17 years comprise roughly 20% and 10%, respectively, for both Secondary and Primary markets.
The property type distribution of the Secondary Markets is also similar to the Primary Markets when comparing the percent of inventory that are majority independent living at roughly 30%, majority assisted living at roughly 25%, and majority nursing care at roughly 45%. Additionally, the payment type is similar at roughly 22% entrance fee versus 78% rental.
Overall, the inventory composition for the Secondary Markets is quite similar to that of the Primary Markets except for the slightly larger share of non-stabilized inventory in the Primary Markets, and this is largely due to construction pipelines and development activity.
Source: NIC MAP® Data, powered by NIC MAP Vision
Source: NIC MAP® Data, powered by NIC MAP Vision
Source: NIC MAP® Data, powered by NIC MAP Vision
The 68 Secondary Markets tracked by NIC MAP Vision somewhat mirror the Primary Markets in terms of inventory composition in aggregate. Additionally, the Secondary Markets have benefited from recovering strength in demand with limited new supply and have better closed the gap to pre-pandemic occupancy than the 31 Primary Markets on average.
______________________
1Stabilized occupancy inventory are properties that are (a) at least two years old, or (b) if less than two years old, properties that have achieved occupancy of at least 95.0% since their opening.
Caroline Clapp is a Senior Principal at the National Investment Center for Seniors Housing & Care (NIC), where she serves as a subject matter expert and supports outreach for the senior housing industry. Prior to joining the staff at NIC, Ms. Clapp was a Vice President at AEW Capital Management. During her 15 years at AEW, Ms. Clapp was a member of the Investor Relations and Research groups, providing client service and real estate research for the firm’s private and public investment strategies. Prior to joining AEW, Ms. Clapp was a Financial Analyst at Entergy Corporation. Ms. Clapp holds a Master of Science in Finance from the Carroll School of Management at Boston College and a Bachelor of Science in Management from Tulane University. Ms. Clapp is a Chartered Financial Analyst® and a member of the CFA Society, Urban Land Institute, Women in Real Estate (WIRE), and CREW Network.
Connect with Caroline Clapp
