The senior housing sector continues to rebound from the Covid-19 pandemic, and pent-up demand drove record senior living unit absorption in the second half of 2021.
While the sustained recovery could brighten the outlook for the senior housing industry, headwinds including an inflationary environment, the possibility of new Covid variants, ongoing labor shortages and lingering effects from move-in restrictions are contributing to an “unbalanced” recovery in the sector, according to a new report by Marcus & Millichap Research Services.
Two-thirds of the roughly 44,000 senior housing units that became vacant during the pandemic were refilled in the second half of 2021. In the final six months of 2021, more than 30,000 senior housing units were absorbed, the report said, citing NIC MAP Vision Data.
“If this can be sustained, it bodes well for demand for seniors housing as more prospective residents have the opportunity to move into these properties without facing the same risks and concerns,” Marcus & Millichap Research Services Vice President and Senior Director John Chang told Senior Housing News.
Chang highlighted the sector’s rebound from the pandemic spurred by increased capital investment and rising occupancy rates as optimistic signs, but cautioned that short-term challenges could restrain the comeback, with the backdrop of an ever-present possibility for a new variant to emerge.
“Although the effects of omicron are waning, there is still the risk of a new wave,” Chang said. “That is a variable that could have significant consequences for the industry.”
The industry as a whole enacted rent growth of about 3.1% in 2021, which was largely offset by rising expenses tied to higher wages and infrastructure costs.
Early in the pandemic, many investors in the senior living industry pressed the pause button as they became more uncertain about the industry’s future. Two years and change later, many have returned to action as more stabilized properties entered the market, the report noted.
While that is causing competition for well-performing or Class A properties to heat up, lower occupancy communities in fast-growing regions of the country, like the Sun Belt, could present value-add opportunities for buyers. The average cap rate among senior housing property sales stayed above 9% since 2018, the report said.
“Momentum is positive as strong underlying demographically-driven demand resurfaces,” Chang said.
Going forward, Chang said industry consolidation would be a trend that could continue through 2022 as smaller operators shed assets to larger entities, which “will help bring increased efficiency to the sector.”
The report also notes that staffing will remain a thorn in the industry’s side for the foreseeable future. Staff shortages in some cases have even stymied admissions, which in turn has slowed occupancy growth.
More than 95% of nursing homes and assisted living communities dealt with staff shortages at some point last year, with employment down more than 10% from February 2020 to November of 2021 for assisted living, CCRCs and nursing homes, per data from the American Health Association, National Center for Assisted Living and Bureau of Labor Statistics cited in the report.
High turnover among caregivers, nurses and other workers is leading operators to grow wages and enact sign-on bonuses to attract and retain them.
“The entire industry will be battling for talent through the coming year,” Chang added. “Meeting the capacity needs of recovering demand will be dependent on hiring.”
Though it’s clear the industry is undergoing occupancy recovery, the rising tide is not lifting all boats.
Buildings with higher staffing needs, such as assisted living and memory care communities, are facing headwinds recruiting and retaining staff, which has limited their ability to recover quickly.
“Nevertheless, the services that assisted living and memory care provide are less replaceable by alternatives, which should aid occupancy once they achieve adequate staffing levels,” the report noted.
Early in the pandemic, local regulators enacted stringent move-in and visitation restrictions, particularly in the Northeast and Pacific regions, which may have had lingering effects on perceptions of senior living in those areas that impacted occupancy, the report found. Now, such dense coastal areas are trailing in the recovery, with occupancy in the Northeast and Pacific falling behind their respective 2019 average occupancy rates by 730 and 860 basis points.
Headwinds from the pandemic drove new construction inventory growth to record lows — but that should help alleviate some of the sector’s other challenges. In 2021, inventory growth totaled 3.4%, the slowest expansion rate since 2014. The report states that the sluggish development pace could push into 2022 as building costs remain high and supply chains remain compromised.
In 4Q 2021, 6,000 fewer units were under construction relative to the same period in 2020, the report found.
“Less competition from new communities should help existing facilities attract residents and also workers,” the report’s authors wrote.
The post Pent-Up Demand Drives Record Absorption as ‘Unbalanced’ Senior Living Recovery Takes Hold appeared first on Senior Housing News.