Senior Housing Market Highlights

​Independent Living (IL): Both occupancy and rents should improve this year as seniors unlock equity in homes and move into IL units. Occupancy is expected to rise 50 basis points to 92.3 percent by year-end 2015 while average rents advance 3.1 percent to $2,923 per month.

Assisted Living (AL): New construction will limit improvements in the sector this year, resulting in a 10-basis point rise in occupancy to 91.4 percent. Strong occupancy and high rents commanded by new properties will support a 2.3 percent gain in average rents this year to $4,268 per month.

Skilled Nursing (SN): Although occupancy has been stuck in neutral for the past several months, a slowdown in construction will support a 30-basis point increase this year to 88.5 percent. Rents will climb 2.1 percent in 2015 to $290 per bed, per day as tight government funding limits reimbursements.

Continuing Care Retirement Communities (CCRCs): A slowdown in the housing recovery could encourage some seniors who have been on the fence about releasing equity in their homes to move forward. Occupancy will rise 80 basis points in 2015 to 91.2 percent, while entrance fees will climb at a similar pace to 2014.

Independent Living Facilities

• According to industry tracker NIC MAP, approximately 3,000 IL units were added
  to inventory during 2014, down from 4,400 units during the prior year. Development
  is rising as 11,600 units are under construction across the country, the highest level since mid-2009. Underway units represent 2.4 percent of existing stock.

• At the end of last year, occupancy at stabilized IL facilities was 91.7 percent, up 100 basis points from the prior year. Since the recessionary trough at the end of 2010, occupancy has climbed 320 basis points and is at the highest level since the
  second half of 2008.

• Average rent growth has been less than spectacular due to an increase in competition
  from other new IL properties, age-restricted apartments, and market rate complexes. Over the past 12 months, average rents advanced 1.8 percent to $2,835 per month.

• As large portfolio acquisitions dissipated last year, transaction velocity dipped 23 percent, though deal flow remained relatively brisk. Investors paid an average price of $180,500 per unit in 2014, up 4 percent from 2013. Average cap rates compressed 30 basis points to 7 percent last year.

• Outlook: Both occupancy and rents should improve this year as seniors unlock equity in homes and move into IL units. Occupancy is expected to rise 50 basis points to 92.3 percent by year-end 2015 while average rents advance 3.1 percent
  to $2,923 per month.

Assisted Living Facilities

• NIC MAP reported 11,100 AL units were added to inventory last year, lifting stock by 3.3 percent. Currently, 18,900 units are underway, representing 5.5 percent of existing inventory. San Antonio and Kansas City face the greatest threat from new construction with 26 and 16 percent of existing stock under construction, respectively.

• Over the past 12 months, occupancy at AL properties climbed 60 basis points to 91.3 percent, building on a 40-basis point rise the prior year. Las Vegas, St. Louis, Portland and Baltimore each posted an occupancy gain of more than 200 basis points in the past year.

• The impact of new construction has hampered rent growth in the AL sector over the past couple of years. In 2014, average rents ticked up 1.1 percent to $4,172 per month, up modestly from 0.8 percent growth the prior year. Only Cincinnati
  posted an annual decrease in average rent.

• Last year, transaction velocity ticked down 6 percent as fewer portfolio deals transacted.
  The average price appreciated 9 percent last year to $158,800 per unit as buyers stretched to acquire top-tier assets. First-year returns, meanwhile, were in the mid-8 percent range.

• Outlook: New construction will limit improvements in the sector this year, resulting in a 10-basis point rise in occupancy to 91.4 percent. Strong occupancy and high rents commanded by new properties will support a 2.3 percent gain in average rents this year to $4,268 per month.

Skilled Nursing Facilities

• Per NIC MAP, skilled nursing inventory contracted by 1,800 units during the past year as obsolete facilities were closed. Only 6,800 beds are under construction in 82 facilities, the lowest level since mid-2011. Inventory is anticipated to decrease again this year.

• Occupancy at SN properties remained flat during the second half of 2014 at 88.2 percent, though the rate ticked up 20 basis points last year. San Jose boasts the highest SN occupancy at 93.3 percent in the fourth quarter, up 10 basis points over the last 12 months. 
• The pace of rent increases is modest, though quarterly gains continue to be made in the sector. At the end of 2014, average rents were $284 per bed, per day, up 2.6 percent in the last year. Rent growth matched the gains achieved during the previousize="2" face="Verdana, Arial, Helvetica, sans-serif">Consolidation continued in earnest during the past year as transaction velocity soared 38 percent year over year. The average price per bed was $95,100 in 2014, up 40 percent from 2013. Although prices are rising, the increase partially reflects some large transactions and rehabilitation facilities.

• Outlook: Although occupancy has been stuck in neutral for the past several months, a slowdown in construction will support a 30-basis point increase this year to 88.5 percent. Rents will climb 2.1 percent in 2015 to $290 per bed, per day as tight government funding limits reimbursements.

Continuing Care Retirement Communities

• Current demographic trends are supporting CCRCs across the country. Over the next five years, the cohort of those 65 to 74 is expected to grow by 23 percent as baby boomers age. The group of those 75 to 84 will jump 11 percent over the next five years.

• Over the past few months, some of the steam in the housing recovery has dissipated, though values are holding steady. In 2014, home prices increased 5 percent to $211,600. Annualized home sales inched up 3 percent in the fourth quarter compared with one year ago, though sales have retreated recently

• ​Overall occupancy at CCRCs was 90.4 percent in the fourth quarter, up 100 basis points over the past year. Entrance-fee occupancy was 90.5 percent at the end of the year, up 40 basis points during the fourth quarter. At rental CCRCs, occupancy increased to 90.1 percent at the end of the year.
• NIC MAP reported entrance fees of $292,000 at the end of 2014, up 4 percent from the same period in 2013. Construction remains relatively stable and falls short of removals, shrinking inventory. In the fourth quarter, only 2,900 units were underway across the nation.

• Outlook: A slowdown in the housing recovery could encourage some seniors who have been on the fence about releasing equity in their homes to move forward. Occupancy will rise 80 basis points in 2015 to 91.2 percent, while entrance fees will climb at a similar pace to 2014.

​Occupancy Overview

2015 Strong Across the Senior Housing Spectrum
Every sector of the seniors housing market has positive momentum entering 2015 as the national economic picture brightens and demographic trends favor strengthening demand. Much of the ambiguity that faced the sector over the past few years has dissipated, though some of those factors may resurface in the years ahead.


Currently, however, strong job growth across nearly every state is refilling local coffers and relieving pressure on state-funded reimbursements. Additionally, more questions surrounding the implementation of the Affordable Care Act and how it will impact operators have been answered, enabling owners to navigate the new system.


The housing market is another bright spot for the industry. After the housing downturn, many seniors elected to stay in their homes rather than liquidate the largest chunk of their nest egg at rock bottom prices. Subsequently, robust appreciation supported a longer hold for those attempting to ride the market up again. Now that some normalcy has returned to the housing market for the first time in many years, a wave of seniors are financially and psychologically in a position to transition into some form of seniors housing.


Similar to other real estate sectors, investors intend on expanding their portfolios this year while interest rates remain relatively low and the clouds that hung over the fate of reimbursements have begun to clear. In the independent living arena, intense demand for apartments is spilling into the sector as buyers outnumber sellers by a wide margin. The added spread between cap rates and interest rates for these properties has been a strong selling point for investors.
​

Assisted living facilities, which typically do not receive the same level of interest from traditional multifamily buyers, are receiving a wave of new capital from REITs expanding in the sector. Approximately $30 billion in non-traded REIT funds could enter the seniors housing market this year, with a significant share targeted at private-pay assisted living facilities. On the other hand, the skilled nursing sector is poised for a renaissance of smaller operators in 2015. Uncertainty took a toll on deal flow at the lower end of the quality spectrum the past few years, and the current bright outlook could help investors recoup lost time. - source:Marcus & Millichap