Seniors Housing’s Net Absorption Hits 5-Quarter High

There’s minimal new construction and impressive absorption occurring recently in the seniors housing market, according to a new report from Marcus & Millichap.

In the final three months of 2023, more than 11,000 senior housing units were absorbed on net, a five-quarter high, according to the report.

This far exceeds the trailing three-year average of 8,500 units per quarter and drove nationwide occupancy to 84.3 percent, according to NIC Map Data Service, just 110 basis points shy of its pre-pandemic baseline.

Meanwhile, inventory in 2023 expanded by less than 2.5 percent for the second straight year with fewer than 37,000 total units underway at the start of this year. This represents less than 5 percent of existing inventory and the smallest active national pipeline in the last decade.

Marcus & Millichap suggested that more investors “may initiate capital deployment strategies for existing facilities” with the Southeast and Mountain regions primed to benefit from this trend.

However, as in most any other development class, elevated material prices and debt costs have been burdens.

The Sun Belt is the preferred location for seniors housing with 10 markets with the most net in-migration last year from that region. The Mid-Atlantic is also faring well, welcoming 400,000 new residents in the past four years.

Operators are pleased to see hiring momentum, which has lifted the senior housing employment total to just 1.5 percent below its 2019 measure.

Given the appreciation of single-family homes, many now face considerably higher property tax burdens, Marcus & Millichap report.

This along with recent inflationary pressures to the cost of goods, elevated living expenses may encourage more residents to transition to independent living facilities.

For the first time in at least 15 years, last year saw independent living net absorption exceed any other service type, lifting segment occupancy by 180 basis points.

Tighter lending requirements prompted last year’s transaction total to fall by 17.5 percent from the 2014-to-2019 average. The national mean cap rate rose to 7.9 percent, its highest point since 2012.

“Moving forward, improved clarity surrounding financial markets, continued occupancy and rent gains, and some listings initiated by financial strain, should prompt a lift in overall velocity,” according to the report. “Limited new supply may also influence investments in existing facilities, as long-term demand drivers support this property segment.”

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