The year 2017 will be remembered as a time when foretold challenges in the seniors housing sector came to roost for many operators. The effects of swelling inventory levels in select markets and the lack of qualified workers took their toll on the bottom line for many operators, as wage growth accelerated and rent growth weakened. At the same time, the strong return performance enjoyed by many seniors housing investors and a seemingly compelling demographic story encouraged development by multifamily operators as more entered the seniors housing sector for the first time.
In 2018, these trends are likely to continue. Construction pipelines will remain high, with growth in independent living properties likely to continue to accelerate, while assisted living development activity is expected to remain high. Near-record low occupancy levels in assisted living will remain tested, with markets such as San Antonio, Texas providing an example of what happens to market fundamentals when rapid inventory growth exceeds demand. In the third quarter of 2017, assisted living occupancy levels in San Antonio fell to 73 percent, nearly a record low point (compared to 71.7 percent in the fourth quarter of 2016) and the lowest rate among the Primary 31 NIC MAP metropolitan area markets. As a result, rent growth stalled at 1.0 percent.
Bright spots in the market
Not all markets have suffered from oversupply, however. In fact, there are some metropolitan areas in which development may be welcomed, especially by consumers who may want more choice, care and living options. Some of these supply-constrained, high barrier-to-entry markets have assisted living occupancy rates in excess of 90 percent and can be found in the West, such as San Jose and Portland, Ore., or in the Northeast, such as New York.
In markets where there is presently an unfavorable supply/demand imbalance from the viewpoint of an investor or operator regarding insufficient resident demand, growing demand penetration rates could possibly make a difference.
How can operators grow penetration rates?
So how can operators grow their own and the industry’s collective penetration rates? Below is a list of some possibilities:
- Create the new “independent living” design and prototype aimed at the boomerang generation—individuals aged 70-plus who want to re-invent themselves with active living, continuing education, second “careers” and volunteerism
- Provide greater service offerings that help the adult child manage the day-to-day needs of their aging parent residents with concierge-type services
- Engage in an industry-wide “Got Milk?” campaign to demonstrate the benefits and advantages—the value proposition—of residing in a seniors housing property
- Find solutions to relatively high-cost housing and fee structures to better make senior living options more available to lower income-threshold households
- Reduce the use of high-cost acute services by becoming part of the broader health care continuum and population health management practices that embrace the whole person in a value-based medical system versus a fee-for-service system by creating design-efficient, attractive housing with enhanced service and care features
- Create up-stream and down-stream relationships with hospitals and skilled nursing properties to create comprehensive and coordinated care
- Provide on-site services such as occupational and physical therapy and regular exercise and wellness programs to elongate residents’ length of stay and improve quality of life
- Focus on specialty care segments such as residents with COPD, diabetes, memory care and other care-intensive needs
- Offer services to the broader local community to familiarize it with seniors housing, while also offering fee-for-service care to the broader community
- Use technology to empower search engines for best-in-class marketing and leasing opportunities
- Employ technology to improve work efficiencies to afford staff more time with residents and improve quality and quantity of care
- Improve employee retention by providing a culture and work environment that makes staff want to stay in place to enhance long-lasting relationships with residents
- Provide a stimulating and enhanced environment with opportunity for community-based involvement, including programs with young adults and children
- Offer choice of services, programs, dining experiences, room configurations, social outings and events
- Create outstanding offerings in customer service and customized experiences
Finally, think outside the box and reinvent seniors housing as we know it today. The “Silent Generation” currently residing in seniors housing was born between 1928 and 1945 and is setting the stage for the upcoming wave of baby boomers who will begin to enter seniors housing starting in 2026 when the first of them born in 1946 turns 80. This boomer generation has proven over the decades that it doesn’t do things the same way as their parents. And for this, we all need to be approaching the market in new and different ways.
Beth Burnham Mace serves as chief economist and director of outreach with the National Investment Center for Seniors Housing and Care (NIC).