Seniors Housing Market Fundamentals Continue to be Affected by the Pandemic: Five Key Takeaways from the First Quarter 2021 NIC MAP Seniors Housing Data Release Webinar

NIC MAP clients with access to NIC MAP^® Data attended a webinar in mid-April on key seniors housing data trends during the first quarter of 2021. Findings reflected the impact of COVID-19 across the seniors housing and care sector and were presented by NIC’s research team. Key takeaways included the following:

Takeaway #1: Seniors Housing Occupancy Fell Further in 1Q 2021 as the Pandemic Continued to Take a Toll

• The 1.8 percentage point decline in the first quarter of 2021 all-occupancy rate for seniors housing to 78.8% pushed this occupancy measure to the lowest level since NIC MAP® data began being reported in 2005.
• This drop in occupancy was directly related to the COVID-19 pandemic as demand (as measured by net absorption and as shown by the orange bars on the chart below) fell by nearly 8,000 units. Combined with the second, third, and fourth quarters of 2020, net absorption has fallen by more than 42,000 units since the onset of the pandemic.
• Separately, inventory as depicted by the blue bars, increased by nearly 5,000 units, for a total of roughly 18,000 units in the past year.
• Since first quarter 2020, the occupancy rate has fallen an unprecedented 8.7 percentage points.

Takeaway #2: A Small Share of Properties Have 95% or Higher Occupancy

• As noted above, the average occupancy rate for seniors housing in the Primary Markets was 78.8% in the first quarter. However, that is an average and the range of occupancy rates is broad and the distribution wide.
• In the first quarter of 2020, 33% of properties reported occupancy rates above 95%. In the fourth quarter, this fell to 12% and in the first quarter of 2021 this slipped further to 9.6%.
• On the flip side, in the first quarter of 2020 there were 22% of properties that reported occupancy below 80%. This increased to 40% in the fourth quarter and 46% in the first quarter of 2021.
• Included in the properties with occupancy rates below 80% are those that opened in 2020 during a global pandemic. It also includes those properties that have slipped in occupancy during this period.

Takeaway #3: Assisted Living Occupancy Decline is Due to Both Pandemic-Related Drop in Demand as Well as New Supply

• Occupancy is affected by both demand and supply. The chart below shows how much of the drop in occupancy in the past year has been attributed to negative demand as the pandemic has taken its toll on move-ins and move-outs and how much of the occupancy change in the past year is due to inventory growth in a market.
• The top portion of the image shows the occupancy rate from first quarter 2020 to first quarter 2021. The length of the line shows the absolute drop in occupancy over the past year. San Jose’s occupancy rate for assisted living fell from 92.2% to 72.4%, hence the longest line in the upper left.
• The lower part of the chart shows how much of that decline was due to demand falling and how much was due to growth in inventory.
• In the case of San Jose, most of the drop was due to a demand impact, but inventory growth also had an impact as property was added to the inventory.
• On the right is San Antonio which saw assisted living (AL) occupancy drop from 78.9% to 70.6% in the past four quarters. Most of this decline was due to negative demand; inventory changed very little. This is shown in the chart as the red portion of the line (95% of the change in occupancy is due to the demand effect; 5% due to supply effect). Other markets that had limited supply shocks were Pittsburgh, San Diego, San Francisco, and Los Angeles.
• Miami is a market where occupancy fell 13.5 percentage points since the onset of the pandemic, but it was not just a demand shock that pushed occupancy lower. Inventory also grew during this time (58% demand, 42% supply shock). The other markets that had the lowest demand shock, where supply was also a considerable factor were Sacramento, Washington, D.C, New York, Minneapolis, and Las Vegas.

Takeaway #4: Construction Starts Slowed in 1Q 2021 for Both AL and IL

• Construction starts were weak in 1Q 2021, with 1,079 units of independent living (IL) initiated in the first quarter. On a four-quarter aggregate basis, IL starts totaled 3,862 units, the fewest units started since late 2012. As a share of inventory, this amounted to only 1.1%. For perspective, at its most recent peak in early 2018, it was 3.8%.
• For assisted living, there were 4,863 units started on a four-quarter aggregate basis in the first quarter, equating to 1.5% as a share of inventory. For perspective, at its peak in late 2015, it was 6.0%.
• Like other residential and commercial real estate sectors, starts are also being affected by rising prices and shortages of labor, lumber, and other key building materials as well as higher land costs.
• It should be noted that the starts data often gets revised in subsequent quarters.

Key Takeaway #5: Preliminary Closed Seniors Housing and Care Volume: $2.4 Billion in 1Q 2021

• Transactions activity remained relatively muted in the first quarter of 2021 as the number of deals closed decreased significantly from the fourth quarter of 2020 as many buyers remained on the sideline for the most part and perhaps some would-be-sellers elected to wait.
• However, with deal count low there were two larger deals—one with Omega as the buyer in a $400M deal and one with Brookfield as the buyer in a $600M deal. The seller was HealthPeak in both of those deals as they continued to sell seniors housing properties.
• In terms of dollar volume, the first quarter 2021 registered $2.4B. The $2.4B represents an 8.9% decrease from the fourth quarter of 2020 when volume registered $2.6B, but it is a 28% decline from a year ago when volume registered $3.3B in the first quarter of 2020.
• Dollar volume continues to be lower than prior to the pandemic but has picked up since the second and third quarters of 2020.

Interested in learning more?

While the full key takeaways presentation is only available to NIC MAP clients with access to NIC MAP data, you can download the abridged version of the 1Q21 Data Release Webinar & Discussion featuring my exclusive commentary below.

Download Abridged Presentation

To learn more about NIC MAP data, powered by NIC MAP, and about accessing the data featured in this article, schedule a meeting with a product expert today.

About Beth Mace

Beth Burnham Mace is the Chief Economist and Director of Outreach at the National Investment Center for Seniors Housing & Care (NIC). Prior to joining the staff at NIC, she served as a member of the NIC Board of Directors for 7 years and chaired NIC’s Research Committee. Ms. Mace was also a Director at AEW Capital Management and worked in the AEW Research Group for 17 years. While at AEW, Ms. Mace provided primary research support to the organization’s core and value-added investment strategies and provided research-related underwriting in acquisition activity and asset and portfolio management decisions. Prior to joining AEW in 1997, Ms. Mace spent ten years at Standard & Poor’s DRI/McGraw-Hill as the Director of the Regional Information Service with responsibility for developing forecasts of economic, demographic, and industry indicators for 314 major metropolitan areas in the U.S. Prior to working at DRI, she spent three years as a Regional Economist at the Crocker Bank in San Francisco. Ms. Mace has also worked at the National Commission on Air Quality, the Brookings Institution and Boston Edison. Ms. Mace is a member of the National Association of Business Economists (NABE), ULI’s Senior Housing Council, the Urban Land Institute and New England Women in Real Estate (NEWIRE/CREW). In 2014, she was appointed a fellow at the Homer Hoyt Institute and was awarded the title of a “Woman of Influence” in commercial real estate by Real Estate Forum Magazine and Globe Street. Ms. Mace is a graduate of Mount Holyoke College (B.A.) and the University of California (M.S.). She has also earned The Certified Business Economist™ (CBE), which is the certification in business economics and data analytics developed by NABE. The CBE documents a professional’s accomplishment, experience, abilities, and demonstrates mastery of the body of knowledge critical in the field of economics and data analytics.

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This blog was originally published on NIC Notes.

About NIC
The National Investment Center for Seniors Housing & Care (NIC), a 501(c)(3) organization, works to enable access and choice by providing data, analytics, and connections that bring together investors and providers. The organization delivers the most trusted, objective, and timely insights and implications derived from its analytics, which benefit from NIC’s affiliation with NIC MAP, the leading provider of comprehensive market data for senior housing and skilled nursing properties. NIC events, which include the industry’s premiere conferences, provide sector stakeholders with opportunities to convene, network, and drive thought-leadership through high-quality educational programming.  To see all that NIC offers, visit nic.org.