The construction of senior housing communities has faced a myriad of challenges in recent years, evidenced by a marked decline in construction starts and extended construction durations. These challenges have been apparent since the onset of the COVID-19 pandemic, and have been further compounded by labor shortages, a lack of building materials, and inflation. Additionally, the quick and large rise in interest rates orchestrated by the Federal Reserve has led to higher construction financing costs, limited availability of debt, and increased development costs. These combined factors have prolonged the time it takes to bring a senior housing project from the planning stages to the construction phase and eventually to its final delivery and eventual opening. 

This analysis examines how the length of time to bring a project to its completion has changed in recent years (construction duration as measured in months) across the 140 NIC MAP All Markets. 

Key Takeaways: 

• The data shows that there has been a steady and consistent increase in the time it takes to construct a senior housing community from 2015 to 2023, suggesting that extended construction duration is not exclusively a post-pandemic trend. 
• Median construction durations have risen from 16 months in 2015 and 2016 to 19 months in 2019 to then 25 and 24 months in 2022 and 2023, respectively. 
• Heightened project deliveries and “oversupply” have played a role in the variability of construction durations and have contributed to a protracted construction process. 
• Fewer construction starts and extended durations of project deliveries provide short-term support for the sector’s occupancy recovery. 
• There will be a pressing need for new construction to meet future demand and adapt to evolving resident profiles and changing requirements. 
• About 41% of senior housing communities are more than 25 years old, and the population age 80 and older is expected to grow by 5.1 million by 2030, equivalent to a 35% increase. 
• Notable shifts in construction timelines are not uniform and vary widely by region. 

Methodology: 

NIC Analytics conducted an in-depth analysis to examine the length of time required to build a senior housing property, i.e., the construction duration (in months) across the 140 NIC MAP All Markets and explore the shifts taking place in construction timelines across different regions. This analysis primarily focuses on new property developments and captures a minimum of 83 construction completions annually, spanning the period from 2015 to 2023. 

The construction duration represents the timeline from the moment the community broke ground to the point when the community officially opened. This analysis uses the community type designation. Senior housing communities captured in this analysis are independent living, assisted living, memory care, and continuing care retirement communities (CCRCs). Note that nursing care communities are not included in this analysis. 

Prolonged Construction Duration for Senior Housing: A Post- Pandemic Challenge? 

The exhibit below depicts the distribution of community construction duration in months, from 2015 to 2023, by year of opening, and demonstrates a clear and consistent trend of increasing construction durations over the time period, with a noticeable increase since the onset of the pandemic in 2020. 

The analysis also reveals that the extended construction duration is not exclusively a post-pandemic trend. Even prior to the pandemic, particularly from 2016 to 2020, construction durations were on the rise. This trend was largely attributed to a period of heightened project deliveries. 

During the delivery boom from 2016 to 2020, the senior housing market saw a surge in new project completions, causing a temporary oversupply of senior housing units, a moderate absorption-to-inventory velocity (AIV ratio) falling below the AIV threshold, and a decline in occupancy rates. This in turn led to a protracted construction process. Challenges stemming from the pandemic, high interest rates, and other economic factors only contributed to the observed prolonged construction duration. 

The median construction durations have consistently risen since 2015, from 16 months in 2015 and 2016 to 19 months in 2019, to then 25 and 24 months at their peak in 2022 and 2023, respectively. However, construction durations are not uniform. The analysis highlights a wide range (Interquartile range, IQR) in construction durations within the senior housing sector, where some projects are completed relatively swiftly, while others take longer to reach completion. Specifically, for the senior housing projects delivered in the last three years (2021- 2023), 25% of senior housing communities were completed in less than 20 months (Quartile 1, Q1), while another 25% took more than 30 months for delivery (Quartile 3, Q3). 

The variability in construction durations – influenced in part by factors such as community type and size – also highlights the differences in access to capital and financing within the senior housing sector. Notably, even amidst the challenges posed by the pandemic, elevated interest rates, increased development costs, and economic uncertainties, there remain senior housing operators who retain the ability to successfully secure financing and complete projects within reasonable and efficient timeframes. 

While construction starts plummeted in recent years and some projects took longer to complete, providing short-term support for the sector’s occupancy recovery, there will be a pressing need for new construction to meet future demand and adapt to evolving resident profiles and changing requirements. Notably, approximately 41% of senior housing communities are more than 25 years old. Additionally, the U.S. population aged 80 and older is projected to grow by 5.1 million by 2030, a 35% increase, according to U.S. Census 2022 projections. 

Separately, the 1Q 2023 NIC Lending Trends report points to a cautious lending climate, with a notable slowdown in construction requests and issuance of debt financing new construction for senior housing. The survey indicated that lenders are responding to these changing conditions by focusing on strong sponsorship and strong credits. This trend reflects a reaction to a jump in the SOFR and 10-year Treasury rates, lower loan-to-value (LTV) ratios, tighter spreads, leaner proceeds, and higher equity requirements. Additionally, new construction loan closings for senior housing remained notably weak in the first quarter of 2023 compared to historical standards, with only two other periods in the time series matching this low level — the third quarter of 2022 and the first quarter of 2021. 

Extended Delivery Times for Senior Housing Projects Compared to the Pre-Pandemic Era, with Regional Timeframe Variations 

The exhibit below shows the distribution of construction durations (in months) for senior housing communities by region. It provides a comparison of project completions in the three years preceding the pandemic (2017-2019) with the three years following the onset of the pandemic (2021-2023). 

Prior to the pandemic (2017-2019), senior housing construction durations displayed regional variations. In the post-pandemic era (2021-2023), we observed notable shifts in construction timelines. However, these changes are far from uniform and vary widely by region. 

The Mountain Region stands out with a notable increase in median construction duration, rising by 10 months from 19 to 29 months when comparing the pre-pandemic and post-pandemic periods. This is followed by the Northeast, with an increase of 9 months (from 17 to 26 months), and the Pacific, showing an increase of 8 months (from 16 to 24 months). Notably, these regions exhibited some of the shortest median construction durations in the three years leading up to the pandemic, whereas, in the last three years (2021-2023, post-pandemic), their median construction durations ranked among the highest in the country. 

Conversely, the West North Central region sustained a relatively steady median construction duration, with merely a 3-month difference between the two periods, shifting from 18 to 21 months. The West North Central region had the shortest median construction duration across all regions in the most recent three years. In the Southeast and Southwest, although there were relatively small increases in construction duration during the last three years, at 26 and 24 months, respectively, they still stand comparably high in contrast to the overall construction durations seen in the pre-pandemic era. 

In summary, the data suggests a widespread increase in construction durations across all regions during the post-pandemic era. The widening of the interquartile range reflects increased variability and broader shifts in construction timelines. These changes have been primarily attributed to disruptions in the supply chain earlier in the pandemic and more recently to labor challenges, inflation, increases in construction wages, and higher interest rates, collectively impacting various facets of construction financing, elevating development costs, and impeding the pace of construction starts and completions. 

In future publications, NIC Analytics will explore units under construction, comparing the Great Financial Crisis with the pandemic era and examining construction in the pipeline across U.S. regions and senior housing community types. 

The aim of this analysis, along with the comprehensive work conducted by NIC Analytics, extends beyond highlighting differences in construction duration and providing comparisons between the pre- and post-pandemic eras. The core message is to increase transparency and highlight that short-term challenges bolster the sector’s resilience, as demonstrated in recent years. Obstacles can spark innovation, ultimately leading to enhanced access and choice for the older adults of today and in the future. 

Looking ahead, the senior housing sector is at the precipice of transformative change. The fundamentals are evolving, with favorable demographic trends but a “higher-for-longer” interest rate environment, and those operators who can assess and embrace these changing trends, adapt with agility, and drive innovation will undoubtedly experience remarkable growth in the future. 

Data from the recently released 3Q 2023 NIC MAP Vision Actual Rates Report showed that the pace of growth in all rates for all care segments (independent living, assisted living, and memory care) maintained near record highs observed since the onset of 2023 for the data contributors to this data collection. In the recently released report, monthly data of actual rates and leasing velocity are presented through September 2023, including data on rate discounting and move-in/move-out trends. Key takeaways from the report, specifically from the Segment Type report, are presented below. Care segments refer to the levels of care and services provided to a resident living in an assisted living, memory care or independent living unit.  

The year-over-year pace of growth in all rates for all care segments maintained near record highs observed since the onset of 2023.

• For the independent living care segment, the third quarter continued to show growth in all rates with an 8.0% year-over-year increase in asking rates and a 9.2% increase in in-place rates in September 2023. Throughout the third quarter, the initial rate held fairly steady around the $3,500 mark, but slightly below what was observed in the second quarter of 2023. Despite this slight dip in July, August and September, the September 2023 initial rate was 5.2% above year-earlier level.
• The assisted living care segment experienced similar or slightly lower year-over-year increases compared to independent living. The third quarter ended with a 7.9% year-over-year increase in September 2023 in both asking rates and in-place rates, which stood at $6,190 and $6,004, respectively. The initial rate for assisted living also grew compared to one year ago, increasing by 5.4%, a figure fairly similar to what was observed for independent living.
• The memory care segment showed the largest year-over-year increase in initial rate among the three care segments, with 7.2% in September 2023.

Discounts for the third quarter were greatest within the independent living segment.

• When comparing the asking rate to the initial rate for the independent living segment, on average during the third quarter, discounts were roughly 12% off the asking rate, equivalent to 1.5 months on an annualized basis. This compares to an average discount of 8% for the assisted living segment (1 month) and 9% for the memory care segment (1.1 months).

The pace of move-ins continues to outpace move-outs across all segment types, bolstering ongoing occupancy recovery.

• The pace of move-ins for the independent living segment for each month of the third quarter averaged around 2.5%. During the month of August, the move-in percentage was 2.7%, the highest percentage since July of 2021. The percentage of move-outs across the third quarter hovered between 1.9-2.0%, the lowest rates observed since early/mid-2022. The pace of independent living move-ins to move-outs during the third quarter was greatest across all of the care segments.
• The percentage of third-quarter move-ins for assisted living maintained a fairly similar percentage as much of 2023, averaging 3.4%. This contrasts with an average pace of move-outs of 2.9%. The gap between the move-ins and move-outs, with 0.5pps on average during the third quarter, is the greatest positive gap since early/mid 2022.
• The memory care segment showed a similar average positive gap of 0.5pps between move-ins and move-outs during the third quarter. The move-in and move-out percentages (3.6% and 3.2% on average, respectively) for the third quarter. It should be noted, however, that for the third quarter, the move-in percentages were among the lowest observed thus far in 2023. Similarly, the move-out percentages for the third quarter were among the lowest recorded since the second quarter of 2022.

Additional key takeaways are available to NIC MAP Vision subscribers in the full report. 

NIC MAP Vision continues to work to onboard new data contributors and is dedicated to reporting more metros. It is only with the support of Actual Rates data contributors and officially certified Actual Rates software partners that expanded metro-level reporting is now available. For more information on which metropolitan markets are now available to NIC MAP Vision subscribers, please contact a product expert at NIC MAP Vision today.  

About the Report 

The NIC MAP Vision Seniors Housing Actual Rates Report provides aggregate national data from approximately 300,000 units within more than 2,700 properties across the U.S. operated by 35 to 40 senior housing providers. The operators included in the current sample tend to be larger, professionally managed, and investment-grade operators as we currently require participating operators to manage 5 or more properties. Note that this monthly time series is comprised of end-of-month data for each respective month, and that the set of properties included in each month’s data set is subject to change. The sample is not “same store,” and occupancy is inclusive of newly opened properties in lease-up. NIC MAP Vision is working on including same-store rate metrics in a future release. 

Interested in Participating? 

The Actual Rates Data Initiative is an effort to expand senior housing data and we are looking for operators who have five or more properties to participate. NIC MAP Vision has expertise in extracting data from industry leading software systems, such as Yardi, PointClickCare, Alis, MatrixCare, Aline, Vitals, Move-N, and Eldermark and can facilitate the process for you.  

Operators contributing data to the actual rates report receive a complimentary report which allows them to compare their own data against national and metropolitan market benchmarks. In addition to receiving a complimentary report, your organization benefits through: 

• More informed benchmarking, strategic planning, and day-to-day business operations, 
• Increased transparency, aligning with other commercial real estate assets in terms of data availability,
• Saved time, Actual Rates data is collected electronically directly from operators’ corporate offices, removing the need for telephone calls to individual properties, and 
• Enhanced investment and efficiency across the sector. 

Visit NIC Map Vision’s website for more information. 

NCREIF Performance Report Q3 2023 

The senior housing sector posted a total return of -1.15% in the third quarter of 2023, down from a positive total return of 0.48% in the prior quarter. Short-term total returns for senior housing slightly outperformed the broader NPI, which posted a total return of -1.37% in the third quarter. Positive income returns for senior housing were outweighed by negative appreciation, driving negative total returns for the quarter. The broader NPI in the third quarter posted a similar performance, with negative appreciation more than offsetting positive income returns. 

The senior housing income return in the third quarter was 0.99%, in line with the apartment sector (0.99%) and stronger than the industrial sector (0.88%), but below the overall NPI (1.07%). The senior housing appreciation (capital/valuation) return was negative for the fifth consecutive quarter at -2.13%, the lowest appreciation return since the second quarter of 2020, but slightly better than the apartment sector’s appreciation return of -2.40%. Overall, current economic and capital market conditions drove negative appreciation returns in all sectors. Further, many investors have reduced their appreciation expectations for senior housing as the sector has not yet recovered to its pre-pandemic occupancy rate. The appreciation return is the change in value net of any capital expenditure incurred during the quarter.   

On a longer-term basis, the 8.70% annualized ten-year return for senior housing was the strongest of the main property types, except for industrial (14.80%), and outperformed the NPI ten-year annualized total return of 7.40%. Income returns for senior housing (5.03%) surpassed the NPI (4.58%), as did the appreciation return (3.56% vs 2.73%). 

The performance measurements cited above for senior housing reflect the returns of 214 senior housing properties valued at $11.39 billion in the third quarter. This was the highest property count in the NCREIF time series for senior housing, while market value was down slightly from a high of $11.47 billion in the prior quarter due to negative appreciation returns in the third quarter. It is notable that the number of properties tracked by this index has grown significantly since the beginning of the pandemic, up from 134 properties in the first quarter of 2020 that were valued at $6.3 billion. The additional properties may be influencing the overall performance returns of the index. 

Third quarter 2023 market fundamentals data for senior housing showed a continued recovery in senior housing occupancy rates in the 31 Primary Markets, according to NIC MAP^® data powered by NIC MAP Vision, as demand for senior housing units outpaced new supply during the third quarter. As a result, the occupancy rate for senior housing stood at 84.4%, up 0.8 percentage points from the prior quarter and 6.6 percentage points from its low point, but still 2.7 percentage points below its pre-pandemic level of 87.1% in the first quarter of 2020. Overall, the relatively steady improvement in market fundamentals against a backdrop of significant volatility in other parts of the economy illustrates the needs-driven demand among older adults for housing and care that the senior housing industry continues to meet. 

Source: Third Quarter 2023 NCREIF Performance Report, NIC Analytics

• Senior housing stabilized occupancy will soon mark its tenth quarter of positive growth, the longest period of uninterrupted gains since NIC and NIC MAP Vision began reporting the data in 2005. 
• Compared to pre-pandemic times, the year-over-year inventory growth has remained relatively modest, with rates for independent living hovering around 1.0% to 1.7% since October 2021 and for AL since June 2022. This subdued pace is partly due to fewer construction starts and extended durations of project deliveries in recent years.  

According to intra-quarterly NIC MAP® data released by NIC MAP Vision, the senior housing stabilized occupancy rate for the NIC MAP Primary Markets increased to 86.1% in the November 2023 reporting period, up 0.1 percentage points (pps) from October 2023 and 0.6pps from September 2023, on three-month rolling basis. From its pandemic record low of 80.2% in June 2021, senior housing stabilized occupancy increased by 5.9pps but remained 3.2pps below pre-pandemic March 2020 levels of 89.3%.  

By Majority Property Type. At 87.4%, the stabilized occupancy rate for majority independent living (IL) properties for the NIC MAP Primary Markets increased by 0.2pps from October 2023 and 0.5pps from September 2023, on a three-month rolling basis, but remained 3.7pps below March 2020 levels. For majority assisted living properties (AL), the stabilized occupancy rate for the NIC MAP Primary Markets was up 0.1pps to 84.8% from October 2023 and 0.7pps from September 2023 but still 2.5pps below March 2020 levels.   

Inventory Growth. From year-earlier levels, the inventory of IL in the NIC MAP Primary Markets increased by 1.4% or 5,023 units in the November 2023 reporting period, 0.3pps lower than that of AL (1.7%).  

Compared to pre-pandemic times, the year-over-year inventory growth has remained relatively modest, with rates for IL hovering around 1.0% to 1.7% since October 2021 and for AL since June 2022. This subdued pace is partly due to fewer construction starts and extended durations of project deliveries in recent years.  

Stabilized Occupancy Recovery Across Select Metropolitan Markets. The stabilized occupancy rate for majority independent living properties increased or remained stable in 24 of the 31 Primary Markets in the November 2023 reporting period compared with October 2023. At 88.7%, Portland independent living stabilized occupancy saw the largest increase, up 0.9pps from October 2023. Cincinnati independent living stabilized occupancy fell by 1.2pps in November 2023 to 86.6%, marking the largest decline from October 2023.  

In November 2023, Boston, Baltimore, Minneapolis, Pittsburgh, San Jose, and Washington, DC reported relatively higher IL stabilized occupancy rates – at or exceeding the 90.0% mark.  

For majority assisted living properties, the stabilized occupancy rate increased or remained stable in 26 of the 31 Primary Markets in November 2023. At 84.2%, Seattle assisted living stabilized occupancy saw the largest increase, up 1.0pps from October 2023. The AL stabilized occupancy rate in Chicago had the largest decline and fell 1.3pps from October 2023 to 82.4%.  

Portland and Tampa reported the highest AL stabilized occupancy rates among the Primary Markets at 90.6% and 90.0%, respectively.  

Keep track of the timely review of the sector’s market fundamentals and trends. The NIC Intra-Quarterly Snapshot monthly publication, available for complimentary download on our website, continues to provide a powerful and closely watched means to stay ahead of industry trends.  

The December 2023 Intra-Quarterly Snapshot report will be released on our website on Thursday, January 4, 2024, at 4:30 pm.    

Interested in learning more about NIC MAP Intra-Quarterly data? To learn more about NIC MAP Vision data, schedule a meeting with a product expert today.   

This year’s Housing for America’s Older Adults report, produced by the Joint Center for Housing Studies of Harvard University and supported with funding from NIC, includes a special, independent analysis on the middle-market older adult. It underscores that the private and public sectors still have work to do to expand housing access and care choices for middle-income older adults as they age.

• Harvard researchers revealed that only 14% of single-person households 75+ with moderate (middle) income can afford just four hours daily of in-home care, and only 13% can afford a move into an assisted living community relying on their monthly income only. Conventional wisdom that care at home is less costly than assisted living was questioned. In certain markets where homeownership and apartment rents are among the highest in the country (e.g. San Diego), assisted living is often less costly than staying in one’s home.
• When looking at the three key accessibility features of single-floor living, no-step entries and wide hallways and doors, less than 4% of homes nationally fit the bill. The majority of older adults with middle-market incomes do not qualify for home modifications or maintenance because of program income limits. This speaks to a market opportunity for senior housing and care where settings are naturally designed for the older adult.
• Two other takeaways include declining homeownership among 50-64 year-olds and rising mortgage debt among homeowners 65 and older. These findings reinforce the need for affordable housing and care options and options whereby home equity is not a requirement to cover costs.

While this study has important implications for the cost of in-home care compared to assisted living, the reality is that the aging demographic will necessitate a multitude of housing and care alternatives. The middle-market older adult cohort is severely underserved. This report can help providers, policymakers and other stakeholders better appreciate that continuing to live at home or pursuing many congregate residential care options are not financially within the reach of many. To advance choices and access for seniors, the private and public sectors must continue to work together.