Don’t Count on Baby Boomers to Drive Senior Housing Occupancy

Many investors are expecting boomers to spark a boom in senior housing, and while that is likely to happen, baby boomers are still a decade away from hitting the average age of senior housing occupants. Today, baby boomers are in their 60s and 70s, but senior housing occupants are typically age 82 or older. Despite being a decade away from baby boomers flooding senior housing demand, the segment is growing every year, and Southern California is trending better than the nation with an occupancy rate of 89.4%, compared to the national occupancy rate of 87.9%, according to research from National Investment Center for Seniors Housing & Care.

“Usually, when we think of senior housing, we think of the average resident as being over the age of 82 or higher,” Beth Burnham Mace, chief economist for NIC, tells GlobeSt.com. “You hear a lot of people talk about a senior housing boom because of the aging baby boomer demographic, but that isn’t really happening. Baby boomers were born between 1946 and 1964, so today, those baby boomers are 72. It is a number of years before the demographic arrives, so to speak. That isn’t to say the age-82-plus cohort isn’t growing, but it isn’t growing at the rate the rate that people associate with the baby boomers.”

While we haven’t hit the boomer boom for senior housing, Southern California is still underserved for senior housing. That is largely because construction activity has been moderate at best. Since 2014, there has been three been only 788 units of senior housing added to the market. “That is what you see in a lot of California markets because there are higher barriers to entry and the development costs are higher,” says Burnham Mace. “Senior housing might not always be the highest and best use, so there are competing needs for the land.”

The limited construction activity has helped to keep occupancy rates up. Other markets with lower barriers to entry and more construction activity have seen occupancy rates fall as a result of oversupply. “Markets like Southern Texas and Atlanta have seen significant development of seniors housing, and as a result, occupancy rates have declined,” says Burnham Mace. “In some instances, that development capital has led to construction activity that has exceeded the market’s ability to absorb that inventory growth. As a result, we have seen downward pressure on occupancies. We haven’t seen that same trend in Los Angeles.”

While construction activity is down, investment activity is up. In fact, according to a new emerging trends report from ULI, senior housing is one of the most sought-after asset classes by investors. “There is a lot of interest in this sector from investors, private equity groups and public REITs and foreign capital groups,” Burnham Mace explains. “Generally, the investment returns have been pretty strong, higher than what you would get in a more standard real estate asset class. If you are a pension fund building out a portfolio, we have seen that there is diversification through senior housing. Senior housing has also shown itself to be somewhat recession resilient because there are more needs-based demand characteristics.”