Pent-Up Need for Critical Services Drives Record Absorption; Labor Shortage and Inflated Operating Costs Curb Sentiment
- Two-thirds of relinquished units refilled in the second half of 2021. Across the final six months of last year, more than 30,000 seniors housing units were absorbed, according to NIC Map® Data Service. This was a very impressive rebound after roughly 44,000 units were relinquished on a net basis during the four quarters following the onset of the pandemic.
- Rates are climbing, but not as fast as inflation and expenses. For most levels of care, average monthly rents grew at a pace on par or faster than the 2015-2019 yearly average. Although, much of the growth came from stabilized properties aggressively pushing up rates, while discounting became increasingly common in facilities with occupancy well below pre-pandemic metrics.
- Labor shortage inhibits occupancy and lifts operating costs. While the headwinds directly related to COVID-19 have eased, the lingering labor deficit in the industry continues to plague operations. The American Health Care Association/ National Center for Assisted Living reported that over 95 percent of nursing homes and assisted living communities were dealing with staff shortages last year.
- Competition for stabilized assets steers buyers to upside prospects. After most institutions hit pause in the early stages of the health crisis, many came off the sidelines as more stabilized properties entered the market.
Unbalanced Seniors Housing Recovery Transpires
- Levels of care that require more staff face steeper hurdles. Many assisted living and memory care communities are facing headwinds recruiting and retaining staff, slowing the pace of occupancy recovery. Ending last year, both segments recorded sub-79 percent occupancy on a national level.
- Dense coastal areas trail in the recovery. Seniors housing was put in a negative spotlight early in the pandemic amid virus outbreaks at facilities, particularly in the Northeast and Pacific regions.
- Low construction alleviates other sector challenges. Across seniors housing last year, inventory growth totaled just 3.4 percent — the slowest expansion since 2014. The sluggish pace of development will extend into 2022 amid high material costs and supply chain bottlenecks.
Skilled Nursing Slowly Moving in the Right Direction
Occupancy climbs in three straight quarters, but a lot of ground to make up. As skilled nursing facilities are particularly labor intensive, many facilities are struggling to maintain sufficient staffing in the current environment. This is limiting admissions, and therefore, occupancy gains. Nonetheless, the recovery is underway, as the segment recorded positive absorption of at least 4,500 units in each of the past three quarters, bringing occupancy to 77.1 percent entering 2022. Still, this is 900 basis points behind the 2019 measure. Meanwhile, average daily rates continued to steadily elevate, with the fastest climbs in the Mid-Atlantic and Pacific regions.
Sources: NIC Map® Data and Analysis Service (www.nicmap.org)
The information contained in this report was obtained from sources deemed to be reliable. Every effort was made to obtain accurate and complete information; however, no representation, warranty or guarantee, express or implied, may be made as to the accuracy or reliability of the information contained herein. Sales data includes transactions sold for $1 million or greater unless otherwise noted. This is not intended to be a forecast of future events and this is not a guaranty regarding a future event. This is not intended to provide specific investment advice and should not be considered as investment advice.
Sources: Marcus & Millichap Research Services; NIC Map® Data and Analysis Service (www.nicmap.org); U.S. Census Bureau; Moody’s Analytics; Real Capital Analytics