Seniors Housing Research Perspective

Demand remained robust through the first half of 2024 with momentum expected to carry forward over the long-term. Demographics and the need for non-family care providers are pushing demand at a time when construction of new product is at historic lows. Acceptance of the product has proven out even after a global health crisis that had severe impacts on the elderly. The pace of residents moving into seniors housing over the past two plus years is twice the average pace of the previous decade, bringing occupancies to within 70 basis points (bps) of pre-pandemic levels. New studies have helped confirm the health benefits of living in a seniors housing community. The primary headwind facing the sector, and commercial real estate more broadly, remains the capital markets that have clearly altered the current valuation landscape, presenting challenges for owners that lack time and/or the resources to fully participate in the recovery. Correspondingly, we believe an attractive opportunity exists for putting new capital to work in a market where liquidity and access to financing is constrained. These dynamics remained evident in the second quarter given the absence of a more robust transaction environment as the underlying demand recovery continued and expense growth normalized, generating double-digit NOI growth.

Occupancies climbed 60 bps in the second quarter, averaging 86.6% across the 99 primary and secondary markets tracked by the National Investment Center for Seniors Housing & Care (NIC). Demand has been broad based by unit type, acuity level, geography and asset quality, albeit not uniform. While higher acuity assets maintain a lower overall occupancy, majority assisted living assets were 85.0% occupied in the second quarter, eclipsing pre-pandemic levels — a notable milestone. Stated differently, all occupancy lost during the pandemic has been reclaimed. After accounting for new construction, overall occupied inventory has expanded by approximately 7% highlighting the secular strength in underlying demand, which we anticipate will continue. Majority independent properties saw occupancies climb 50 bps to 88.0%. By unit type, demand for memory care units has materially outpaced the other segments on a percentage basis and represents about 15% of all seniors housing units. Across markets, roughly half have now achieved pre-COVID occupancy levels with smaller markets doing somewhat better as they avoided the more pronounced overbuilding that occurred in larger growth markets earlier in the cycle.

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