Skilled Nursing Facilities Struggle To Bounce Back From COVID Woes

Skilled nursing facilities fared the worst among senior housing properties in the first quarter, with vacancy climbing to nearly 17%—a figure that matches the overall national vacancy rate for all property types within the sector.

New data from Moody’s Analytics REIS shows that overall, senior housing continued along the similar trajectory in Q1 as in previous quarters during the pandemic and posted the fourth straight quarter of increasing vacancy. Skilled nursing increased 140 basis points, while memory care facilities showed a vacancy uptick of 9% and ended Q1 at 20.1% vacant. Independent living care facilities posted a 6.4% rise in vacancy over the pandemic period to hit 16.2% in Q1, while assisted living properties increased 7% to 18.3%.

“Despite reaching levels never seen before in the sector, it appears that the effects of the Covid-19 pandemic are still not behind the sector despite falling virus caseloads,” writes Moody’s Benjamin Bloch in a recent report.

Adjusted rental rates reflected declining demand last quarter as well, with memory care and independent living care types showing 2021 Q1 rent growth of 0.7%, down from 1.1% in 2020 for both. The only exception was assisted living, which did not show a decrease year-over-year, but remains lagging behind Q1 2019 numbers by 30 basis points.

Negative net absorption was also a consistent theme across all senior housing property subtypes, with skilled nursing facilities posting the worst numbers at -8,400 units followed by -1,500 units for independent living, -1,800 units for assisted living and -800 units for memory care facilities. Completions also continue to lag behind 2019 and 2020 numbers.

“As a result of the continued weakness in sector fundamentals, a slowdown of new facilities coming to market is consistent with the increase in investor caution for senior housing,” Bloch says.

And while the pandemic is beginning to wane among the broader population, Moody’s warns that “demand for senior housing continues to erode given the challenges these facilities face at combating the spread of Covid-19 within their resident populations and staff.”

“The rest of 2021 will be pivotal for the sector—will consumer confidence in this care type return if they can continue to show that an increased priority on medical safety and well-being at their locations has been able to provide a safe and healthy environment for seniors? Or will there be a more long-lasting shift in the sector demand dynamic, causing properties who lag the field in implementing modernized living environments to continue to experience high vacancy levels?” Bloch writes. “It may well take a significant amount of time for vacancy levels to approach pre-pandemic levels, and operators may be forced to continue to scale back rental rate increases in order to fill those vacancies.”