Market Feasibility Disruptions Change Perspectives

by Jeff Shaw

The way we look at development markets desperately needs recalibration.

By Jamie Timoteo

What’s changed in the senior living industry during the last 10 years? 

Well, to start, we’ve seen changes in marketing strategies, financing options, sales tactics, technology, healthcare regulations, Medicaid funding, consumer expectation, cost of construction, attitudes toward seniors housing, fee structures and design trends. The real question is, what hasn’t changed? 

The answer: market feasibility studies.

Changing times call for changing measures

The senior living industry’s rapid growth in the last decade is unprecedented. We’ve seen an abundance, perhaps even a surplus, of new development across the nation.

Much of this optimistic development comes from organizations new to the senior living industry. Data from the National Investment Center for Seniors Housing & Care (NIC) show operators with two or fewer properties built nearly half of the 596 new properties added in the top 100 MSAs between 2014 and 2016. New entrants are creating a spike in competition for longtime providers.

It’s no surprise why these folks are entering the arena. With some sources estimating that the 85-and-older population will triple by 2040, the senior living industry is anticipating the deluge of potential residents who will come in a mounting flood to our doors. In response, existing owners and equity funds have been heavily investing in the seniors housing market, giving momentum to developers who feel confident they can build anything and guarantee occupancy.

Many for-profit providers are following suit, taking advantage of the readily available capital. In the top 140 MSAs across the United States, NIC estimates 50,000 units are currently under construction. For-profit organizations account for 40,000 of them.

Despite rapid development and new operators transforming our market, current market study methodologies for evaluating demand have not been recalibrated. While not necessarily wrong, the current approach may be becoming antiquated. Accurately predicting demand in this volatile industry requires market studies adapt to the changing times.

Creating new market study norms

With a new perspective on the following metrics, senior living providers, developers, investors, and lenders can monitor the right market information to make a smart “go” or “no-go” decision on their next capital project or senior living development.

Market area definitions

How you define your market area has a huge impact on your results. Industry norms trend toward a target point surrounded by concentric rings at specified intervals or based on a certain drive-time sensitivity. 

However, defining this area requires much more nuance. Geographic, psychological and socioeconomic boundaries should be accounted for, as should population density. Historical data from Plante Moran Living Forward demonstrates that low-population rural areas find themselves capturing a larger market area than highly populated urban areas.

Because so many considerations could affect the area from which you’ll draw residents, looking at this definition from several perspectives will ensure you’re capturing data on the correct population.

Home value vs. net worth

The traditional market study will often use the market area’s average home value to validate the seniors’ ability to spend down equity after selling their homes. The problem: More seniors have debt than in the past, and the amount of that debt is higher than we’ve seen in the last 20 years.

According to the Joint Center for Housing Studies of Harvard University, 22 percent of homeowners aged 65 and older in 1995 had mortgage debt on their primary residences. By 2013, that number rose to 38 percent. During the same period, their amount of debt carried rose from $27,300 to $73,000.

Based on the information above, your market study should also consider overall net worth, since similar home value and net-worth totals may indicate the market’s seniors have a majority of their assets tied up in their homes.

Labor market statistics 

If you want a successful project, it’s critical you assess current and prospective labor markets, a statistic not usually included in a market study. 

The Center for Health Workforce Studies projects employment in the country’s health sector to grow at a significantly higher rate than all other employment sectors. Even now, intense competition exists for quality labor — to the point where high-demand, well-financed facilities have failed because the area’s labor pool couldn’t produce the staff necessary to provide services.

This is true of both healthcare staff and those in supporting and non-specialized roles such as dietary assistants and sales staff. Labor competition comes from many sources: other senior living facilities, hospitals, and even local Walmart stores, Applebee’s restaurants and Amazon Fulfillment Centers.

Market studies should specifically assess the labor pool in relation to your proposed project and other new developments in the area, senior living or otherwise. In a low-unemployment era, if you’re paying wages below or similar to other businesses, you may find it hard to staff your facility.

Demand predictions

Penetration rates measure the percentage of age- and income-qualified households the market needs to capture to reach a stabilized occupancy. Market study users usually view low penetration rates as favorable and indicative of higher demand. High rates, conversely, look like discouraging hurdles to overcome.

Contrary to popular belief, you cannot predict demand for a particular type of senior living by looking solely at the market’s penetration rates. To determine current — and, critically, future — demand, you should assess penetration rates in conjunction with other metrics and an evaluation of comparable markets in the area. For example, high penetration rates, when assessed with other factors, could reveal that the market’s seniors are especially favorable toward the idea of moving into senior living.

Adapting for the future of senior living

The seniors housing industry has adapted significantly over the last 10 years, reacting to a massive uptick in the number of assisted living units offered, focusing more on rental facilities, and other changes. Market studies have been critical in identifying many of these new trends. 

It is important now that market study benchmarks continue to adjust to adequately guide developers through their due-diligence process.


Jamie Timoteo is vice president of Plante Moran Living Forward, a seniors housing development consulting firm. He specializes in giving data-driven advice on identifying market needs for senior living communities and compiling financial analyses to determine the feasibility of capital projects.

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