ANNAPOLIS, Md. — The average occupancy rate for independent living and assisted living properties in the second quarter of 2016 dropped to 89.7 percent, as new inventory outpaced absorption of units, according to a quarterly report from the National Investment Center for Seniors Housing & Care (NIC).
The occupancy rate represents a decrease of 30 basis points from the prior quarter, and brings average occupancy back down to where it was a year ago. During the past three years, occupancy has averaged 89.8 percent. As of the second quarter of 2016, occupancy was 2.8 percentage points above its cyclical low of 86.9 percent during the first quarter of 2010.
The skilled nursing sector saw the same drop of 30 basis points to 87.1 percent.
Despite the lower occupancy rate the second quarter, annual asking rents for independent living and assisted living continued to grow, increasing 3.2 percent. This is an increase of 10 basis points over the first-quarter growth rate and 80 basis points over the previous year. It’s the highest rate since the second quarter of 2008, NIC reports. In skilled nursing, the asking rent growth stayed flat at 2.8 percent.
Annual absorption for independent living and assisted living slowed to 2.3 percent in the second quarter, a drop of 20 basis points from the previous quarter. Skilled nursing continued to see negative absorption, though the pace slowed 10 basis points to -0.8 percent.
“By property type, it is notable that independent living’s annual absorption rate slowed, while its annual rate of inventory growth is accelerating,” says Beth Burnham Mace, chief economist for NIC. “The annual absorption and inventory growth rates for assisted living are decelerating, although the pace of activity is still stronger for assisted living. If this pattern continues, it suggests that there will be additional downward pressure on occupancies for independent living in the near future.”
Current construction as a share of existing inventory for independent living and assisted living slowed 10 basis points to 5.6 percent as of the second quarter of 2016, though it is still up 50 basis points from the second quarter of 2015.
Seniors housing construction starts during the second quarter of 2016 preliminarily totaled 3,657 units, comprised of 1,890 independent living units and 1,767 assisted living units. On a four-quarter basis, starts totaled 18,022 units, the weakest pace since the fourth quarter of 2014, according to NIC.
“This construction cycle had been dominated by starts of assisted living units until this quarter,” says Chuck Harry, NIC’s chief of research and analytics. “During the second quarter, starts of independent living units doubled from that of the prior quarter and surpassed assisted living unit starts, which declined by roughly one-third from their level during the prior quarter.”
In skilled nursing, the annual inventory growth rate was zero in the second quarter of 2016.
Based in Annapolis, NIC is a 501(c)(3) organization seeking to advance the quality and availability of seniors housing through research, education and increased transparency. The organization’s data is based on analysis of approximately 14,000 seniors housing properties in 140 U.S. markets.
— Jeff Shaw