The near-term outlook for senior housing is grim, but the worst could be over by the midyear. A new report from Mizuho is cautiously optimistic that the senior housing industry could hit a trough by the second half of 2021, thanks in large part to the vaccine rollout.

Senior housing investors will still have to get through the storm. In the first half of the year, the same report expects weak NOI growth among the healthcare REITs and ongoing rent deferrals and rent abatements for triple-net senior housing tenants. Occupancy losses in senior housing accelerated at the end of the year, and Mizuho expects they will continue to drop through at least the first quarter. In January, senior housing vacancy rates had dropped to the lowest level on record, according to National Investment Center for Seniors Housing and Care after a turbulent fourth quarter where occupancy rates dropped to 80.7%. Overall for the year, occupancy fell 6.8% in the sector.

Compounding the problem, operations expenses have continued to rise. The combination of falling occupancy and rising operations costs could present a rough road ahead for smaller operators if parent REITs don't provide some form of rent relief. Some REITs are responding, like LTC Properties, which recently cut the annual rent increases in its leases by 50% for 2021.