It’s the open secret that leading operators have long known—an engaged workforce leads to success in other parts of operations, including key financial and performance metrics.

In the words of one senior living executive, “Happier employees means happier residents. That’s what we’re all about.”

But can we quantify it? What is the business case for employee engagement that will spur us to action? Now, a study coauthored by Argentum and Great Place to Work Institute’s senior care team reveals some answers.

This study is the first of a two-part white paper series and provides the evidence. The study is based on interviews with hundreds of executives along with more than 10 million data elements gathered from senior living employees themselves.

Highlights from the research include:

• A typical senior living operator with 1,500 employees and 20 communities could potentially save $4.4 million a year by reducing turnover by 10%.
• The Trust Index measuring employee engagement is tied to lower turnover and better resident care.
• More than 65% of senior living communities plan to grow the number of seniors served by at least 5% in the next five years, making it more important than ever to provide caring, professional staff.
• Senior living needs more direct care workers, licensed nurses and support positions such as chefs, drivers, and maintenance managers.

Executives in our industry care about this topic, and we share the findings openly along with best practices. The hope is that our sector will continue to improve by offering a competitive place for individuals across the U.S. to grow their careers.

The white paper can be found here.

The unemployment rate held steady at 3.7% in October, which is the lowest rate since December 1969. The jobless rate remains well below the rate of what is generally believed to be the “natural rate of unemployment” of 4.5%, which suggests that there will be building pressure on wage rate growth.

Evidence is mounting that this is in fact starting to occur.  Average hourly earnings for all employees on private nonfarm payrolls rose in October by five cents to $27.30. Over the past 12 months, average hourly earnings have increased by 83 cents, or 3.1%.  This was the strongest pace since 2009.  Last year, they rose by 2.6%.  A separate survey, the BLS’s quarterly Employment Cost Index (ECI) also showed acceleration in wage growth, with a year-over-year increase of 3.1% in wages and salaries in September, up from 2.6% a year ago. The 3.1% increase was the fastest pace since the financial crisis.  By industry group, nursing and residential care facilities saw a 3.0% gain in wages and salaries, up from 2.8% a year ago.

A broader measure of unemployment, which includes those who are working part time but would prefer full-time jobs and those that they have given up searching—the U-6 unemployment rate—fell to 7.4% from 7.5% in September.

The Labor Department also reported that there were 250,000 jobs created in the U.S. economy in October, above the consensus expectation of 200,000.  This was the 97th consecutive month of job growth.  However, September was revised down from 134,000 to 118,000 and August was revised up to 286,000 from 270,000.   The September figure may have been negatively affected by Hurricane Florence. Payrolls have averaged 218,000 per month for the last three months and 213,000 for the past ten months, up from 182,000 last year.  It is important to note that he jobless rate is calculated from a different survey than the survey used to calculate the number of new jobs (the household versus the establishment survey, respectively).

In October, employment in health care rose by 36,000, with 8,000 of these positions occurring in nursing and residential care facilities. In the past year, health care has added 323,000 jobs.

The labor force participation rate, which is a measure of the share of working age people who are employed or looking for work increased to 62.9% in October from 62.7%, still very low and near its cyclical low of 62.3% in 2015.  The low rate at least partially reflecting the effects of an aging population.

The October jobs report and the acceleration in the salary and wage data will provide further support for increases in interest rates through 2018 by the Federal Reserve. As widely expected, the Fed increased the fed funds rate by 25 basis points at its September FOMC meeting, the third increase in 2018.  The Fed has raised rates by a quarter percentage point eight times since late 2015, and most recently to a range between 2.00% and 2.25% after keeping them near zero for seven years.  It is widely expected that the Fed will raise rates at the next FOMC meeting to be held in December, with another three rate hikes anticipated in 2019, pushing rates toward 3.4% by 2020.

For consumers who save, higher rates are good news as their returns on CDs and money market accounts will grow at a faster pace.  But for borrowers—both consumers and businesses–higher rates are not good news as their borrowing costs will be higher.

Helping the seniors housing and care industry provide America’s elders with a variety of appropriate options is part of NIC’s mission. In this era of innovation, in which technology is quickly advancing, payment models are shifting, and a new generation of consumers is driving change, NIC encourages industry decision-makers to stay aware of what’s new and upcoming as they develop plans for the future. As millions of baby boomers approach, they will demand options and will present a range of challenges, many of which should be anticipated today. To that end, we’d like to encourage you to consider attending Aging2.0’s OPTIMIZE Conference.

The event will be held November 14-15, 2018 in San Francisco. It is designed to bring together industry innovators for networking, learning, and building partnerships in the “longevity economy.” Investors, owners, operators, and other stakeholders will hear from industry leaders embracing new models of care. Aging2.0 promises to highlight proven solutions to the biggest challenges and opportunities unfolding in post-acute and senior care. Attendees should expect a fast-paced whirlwind of opportunities to learn about the needs and complexities of the enormous (and growing) older consumer market.

Aging2.0 has historically favored technological innovators, which we at NIC believe hold some of the keys to success in this era of innovative disruption. The conference will feature start up pitch sessions, an investor session, in which startups actively seek to connect with investors, and other tech-related networking opportunities with seed- to pre-IPO companies raising capital. For anyone interested in what is currently emerging in aging-related tech, the conference should offer real value.

Aging2.0 is offering NIC Insider readers a savings of 20% off conference registration with Promotional Code MVP18-NIC.

Expanding on a recent blog post that detailed care segment performance in the Primary Markets since the most recent market cycle peak that was reached in the fourth quarter of 2014 for the seniors housing and care segments, this analysis goes a step further by  considering the market fundamentals of segments within continuing care retirement communities (CCRC segments), compared to non-CCRC segments in freestanding or combined communities. Also referred to as life plan communities, CCRCs offer multiple care segments (at minimum independent living and nursing care) typically by a single provider on one campus, and this analysis breaks the segments apart from the CCRC community type that NIC includes under the main category of Seniors Housing.

With the objective of making “apples to apples” comparisons, this data is useful for understanding the relative performance of care segments within CCRCs. In order to conduct the analysis, data was mined for 4Q2014 to 2Q2018 (the period under study) from the NIC MAP database for both CCRC entrance fee (EF) and rental payment types (note that 98.8% of Non-CCRC segments were rental). Although NIC MAP recently released 3Q2018 data, to be consistent with the prior blog post on which this analysis builds, 2Q2018 data is referenced.

For context, the seniors housing fundamentals in the Primary Markets since the first quarter of 2006 through the second quarter of 2018 showed peak and near-peak occupancy rates were reached in the quarters leading up to the Great Recession, and more recently, in the second half of 2014, when the occupancy rate hovered around 90% for several quarters. In the beginning of 2016 the seniors housing occupancy rate began a 10-quarter decline as inventory growth outpaced absorption, falling to 87.9% as of the second quarter of 2018. This was the lowest occupancy rate in seven years.

As previously reported, while all segments within the seniors housing category saw declines in occupancy for the period 4Q2014 to 2Q2018 due to inventory growth outpacing absorption, the independent living segment performed the best in terms of occupancy and average annualized asking rent growth. The memory care segment had the weakest comparative performance, overall, with the strongest change in inventory, which put pressure on the segment’s occupancy rates and rent growth.

This analysis goes a step further: CCRCs and Non-CCRCs

Occupancy

Across all segments, entrance fee CCRCs (CCRC EF in the tables) had stronger occupancy growth rates than rental CCRCs or non-CCRCs for the period under study (4Q2014 to 2Q2018).

The memory care and independent living segments in entrance fee CCRCs had the highest rates of occupancy growth, (1.9 and 1.5 percentage points, respectively). The weakest rates of occupancy growth were reported for the non-CCRC memory care and assisted living segments (-3.8 and -3.4 percentage points, respectively). Non-CCRCs, in general, had weaker occupancy growth rates by segment than CCRCs, but rental CCRCs performed worse than non-CCRCs in the nursing care segment in terms of occupancy.

In the second quarter of 2018, CCRCs had higher occupancy levels than non-CCRCs, and entrance fee CCRCs had higher occupancy levels than both rental CCRCs and non-CCRCs.

Inventory

In the Primary Markets, CCRCs account for 49% of the total independent living units, 12% of the total assisted living units, 9% of the total memory care units, and 10% of the nursing care beds.

Non-CCRCs generally had higher rates of inventory growth by segment than CCRCs, and entrance fee CCRCs had stronger rates of inventory growth than rental CCRCs. The highest rate of inventory growth was reported for non-CCRCs in the memory care segment (34.7%). The weakest was reported for the nursing care segment of rental CCRCs (-4.1%).

Asking Rent

Non-CCRCs and entrance fee CCRCs had slightly stronger average annualized asking rent growth by segment for the period than rental CCRCs in independent living and assisted living, and rental CCRCs had slightly stronger average annualized asking rent growth for memory care.

The strongest average annualized rent growth (3.3%) was noted for entrance fee CCRCs in the nursing care segment, rental CCRCs in the memory care segment, and non-CCRCs in the independent living segment. Non-CCRCs saw the weakest average annualized rent growth in the memory care segment (2.4%). Entrance fee CCRCs reported stronger average annualized asking rent growth in nursing care and assisted living than rental CCRCs or non-CCRCs.

In summary:

• Non-CCRC segments, in general, had weaker occupancy levels and growth rates than CCRCs. This may be because non-CCRCs had generally higher rates of inventory growth by segment.
• Entrance fee CCRCs generally had stronger occupancy growth rates by segment than rental CCRCs and non-CCRCs, and also had higher rates of inventory growth than rental CCRCs.
• Non-CCRCs and entrance fee CCRCs had stronger average annualized asking rent growth by segment for the period than rental CCRCs in independent living and assisted living. The strongest average annualized rent growth was noted for entrance fee CCRCs in the nursing care segment, rental CCRCs in the memory care segment, and non-CCRCs in the independent living segment.

Look for future blog posts from NIC to delve deep into the relative performance of care segments within CCRCs. This analysis, not available elsewhere, will be a continuing feature.

NIC MAP® Data Service clients attended a webinar in mid-October on the key seniors housing data trends during the third quarter of 2018.  Key takeaways included the following:

Takeaway #1:  Seniors Housing Occupancy Unchanged, but Remains Soft

• The all occupancy rate for seniors housing, which includes properties still in lease up, was unchanged from the second quarter and remained at 87.9% in the third quarter, but this was down 80 basis points from the third quarter of 2017. This was the lowest occupancy rate in seven years or since 2Q2011.
• This placed occupancy 1.0 percentage points above its cyclical low of 86.9% reached during the first quarter of 2010 and 2.3 percentage points below its most recent high of 90.2% in the fourth quarter of 2014.
• During the quarter, 4,378 units were added to inventory, significantly less than the record pace of nearly 6,300 units seen last quarter and less than the pace of one year ago, but still a lot by historical norms. Net absorption totaled 3,765 units, up from the second quarter, but not as strong as one year ago.
• On a four-quarter moving sum,  19,981 units were added to the stock of seniors housing inventory in the past 12 months, not a record high, but close to the peak of 20,015 achieved in the second quarter of 2017.  That represents a 3.4% increase in inventory in the past year.

Takeaway #2:  Assisted Living Occupancy Near Record Low Point of 2Q18

• Assisted living reached a near-record low occupancy rate of 85.3% in the third quarter. In the second quarter, the rate had reached an all-time low of 85.2%.
• There is a wide 250-basis point difference between stabilized and non-stabilized occupancy rates for assisted living. This stems from the large number of units that have  come online but are not yet leased up.  Based on data from NIC MAP Analyst report, there were 17,207 non-stabilized units in the third quarter, 6.2% of all inventory.

Takeaway #3:  Construction as a Share of Inventory Remains High

• In the third quarter, an estimated 36,902 units were under construction in the Primary markets.  This was the fewest units actively under construction since the first quarter or 2016, but still very high. This chart shows units under construction on the left axis and construction as a share of inventory on the right axis.  Construction includes any project that has broken ground and has not yet been opened.
• As a share of inventory, these units represented 6.0% of today’s stock.  This was below the four-time recent peaks of 7.0% or more seen in third and fourth quarters of 2016 and 2017.

Key Takeaway #4:  Annual Same-Store Rent Growth Above 2.5%

• Same-store asking rent growth for seniors housing accelerated in the third quarter, with year-over-year growth of 2.9%. This was up from 2.7% in the second quarter of 2018 but below the 3.8% rate it reached at the end of 2016.
• Asking rent growth for assisted living (orange line) was 2.6% for the third quarter, down 10 basis points from the second quarter. For independent living (blue line), rent growth accelerated back to 3.1% from 2.7% in the second quarter and 2.3% in the third quarter of 2017.
• This quarter, we’ve compared asking rent growth to the changes in average hourly earnings for assisted living workers, figures that are tracked and monitored by the U.S. Bureau of Labor Statistics. Average hourly earnings were up 4.2% for assisted living employees as of 2Q2018 Together, these lines show the pressure operators may be having as expense growth has been pressured higher, while rent growth has been easing.  For many operators, labor expenses amount to 60% of their expenses.
• There is wide variation in rent growth, however.  Among the Primary markets, the top ranked metropolitan areas for  year-over-year rent growth were Portland Oregon (5.1%), San Jose, Seattle and San Francisco.  Poorest rent growth was in Dallas, Kansas City, Cleveland and Atlanta.

Key Takeaway #5:  Seniors Housing and Nursing Care Pricing Down in 3Q18

• Preliminary data for the third quarter shows that the rolling four-quarter price per unit for seniors housing was $159,700 in the third quarter, which is the lowest price per unit since the second quarter of 2014.
• For skilled nursing, the price per bed was an estimated $71,200 as of the third quarter 2018, which is down 15.3% from the prior quarter.