On today’s show we’re talking about demographics and the senior housing market. The baby boomers began turning 65 years of age in 2011. Today the oldest baby boomer is 72 years old. By 2029 the remainder will also reach age 65 and account for more than 20% of the total population. By 2050 the population of senior citizens is estimated to equal 88 million people nearly double the current population of 49 million.
Much of the new capacity in senior housing has been billed in anticipation of this massive future growth. But that growth will not hit assisted living and skilled nursing for at least another decade. The near term growth area is in independent living. One of the primary drivers for senior housing the aging population is longer life expectancy. in the 1970s the average life expectancy was 80.2 years of age buy 2018-expectancy hey Snell 85 1/2 years of age. It’s also estimated that one in 4 will live to be 90 years of age and one in 10 will live past 95 years of age
A report issued last week by Fannie Mae’s research team takes a broad summary view of the senior housing across the nation. Generally speaking, nationwide occupancy in assisted living peaked back in 2015 at 89% occupancy. Since that time, there has been a lot of new product injected into the market causing average occupancies to fall to about 85%. In spite of the low occupancies, we continue to see year over year rent increases of about 3% per year.
The report notes that occupancy is falling marginally across the nation, driven largely by the amount of new product that entered the market last year. Thankfully, the amount of new supply is also slowing. The number of new starts this year declined by 21% in Q4. This shows that the market has gotten a little ahead of itself. Much of the new capacity has been built in anticipation of our aging population.
The silver lining in this is the absorption rates have reached record levels in 2018 with nearly 14,000 units being absorbed during the year. That’s a 34% increase in absorption compared with the prior quarter. So if absorption rates hold steady or continue their upward trend, we can expect occupancies in AL to increase into the high 80’s and eventually into the 90’s, depending on the rate of new construction in the future.
The most troubled segment in senior housing is the skilled nursing sector. One of the nations largest operators is Five Star based in Newton Mass. The company operates with 213 senior living communities it owns or leases and 70 it manages across 32 states.
Skilled nursing occupancy dropped again this year and rests at 78%. The skilled nursing segment has lost market share to the newer assisted living and memory care model, which offers a lower cost alternative for many clients who have enough of the basic human functions to qualify for assisted living.
We know that demand is going to double over the next 15 years. So operators are clearly trying to position themselves to win, even if it means suffering a little bit of short term pain with lower occupancies.
