Occupancy Declines Level Off as Seniors Housing Absorption Remains Strong, Says NIC

ANNAPOLIS, Md. — The occupancy rate for seniors housing across the United States was steady in the third quarter of 2018, according to new data from the National Investment Center for Seniors Housing & Care (NIC), an Annapolis-based nonprofit organization that provides data and analytics on the sector.

Occupancy in U.S. seniors housing properties averaged 87.9 percent in the third quarter of 2018, unchanged from the prior quarter and down 80 basis points from a year ago. This places occupancy at its lowest level since the second quarter of 2011 (87.5 percent). Current occupancy is 230 basis points below its most recent high of 90.2 percent in the fourth quarter of 2014.

NIC data is derived from tracking data from the top 31 primary metropolitan U.S. markets.

NIC is quick to point to continued strong absorption (2.4 percent in the third quarter) as a sign that the sector is strong. The rate of new inventory growth, though, continued to outpace absorption at 3.4 percent.

“While the seniors housing occupancy rate has declined by 2.3 percentage points since year-end 2014, the number of occupied seniors housing units has actually increased during this same period by 8.9 percent, which equates to a solid 2.4 percent annual pace of increase,” said Chuck Harry, NIC’s chief of research & analytics. “It’s the fact that the rate of inventory growth has exceeded the absorption of units through this period that has driven the decline in the occupancy rate.”

Preliminary data on construction as a share of existing inventory for seniors housing was 6 percent in the third quarter of 2018 and was 110 basis points below its recent high of 7.1 percent in the fourth quarter of 2017.

During the third quarter of 2018, the average rate of seniors housing’s annual asking rent growth was 2.9 percent, up 20 basis points from the prior quarter and down from a recent high of 3.8 percent in the fourth quarter of 2016. For comparison, labor expense growth as measured by the annual change in assisted living average hourly earnings was 4.2 percent in the second quarter, according to the Bureau of Labor Statistics.

“Rent growth has been less than wage growth for the past six quarters,” said Beth Burnham Mace, chief economist for NIC. “With today’s tight labor markets, upward pressure on wages is likely to continue, which will put pressure on some operators’ ability to grow NOI.”

To view the full third-quarter report, click here.

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