The following analysis examines the occupancy and year-over-year changes in inventory and same-store asking rent growth—by care segment—within 1,062 Continuing Care Retirement Communities (CCRCs) and 13,796 non-CCRCs in the 99 NIC MAP Primary and Secondary Markets. The analysis also explores supply and demand dynamics in the memory care segment over recent years.

3Q 2024 Market Fundamentals by Care Segment – CCRCs vs. non-CCRCs

The exhibit below compares the market performance of CCRCs and non-CCRCs by care segment for the third quarter of 2024, highlighting year-over-year changes in occupancy, inventory, and asking rent growth.

Occupancy. CCRCs continued to outpace non-CCRCs in occupancy rates across all care segments. The largest occupancy difference in the third quarter of 2024 was in the independent living segment (5.2pps), followed by the assisted living segment (4.2pps), with the smallest gap in the nursing care segment (1.0pps).

Asking Rent. The highest year-over-year rent growth for non-CCRCs was seen in the independent living (4.3% to $4,098) and assisted living segments (4.3% to $6,410), while CCRCs recorded the largest asking rent growth in the memory care segment (4.3% to $8,749).

Note, these figures denote asking rates and do not consider any potential discounting.

Inventory. Nursing care inventory saw the largest declines for both CCRCs (-1.5%) and non-CCRCs (-0.4%) from the prior year. Among CCRCs, memory care was the only care segment to report positive inventory growth, up by 1.2% from year-earlier level. For non-CCRCs, independent living and memory care segments saw the largest year-over-year inventory growth, at 1.8% and 1.7%, respectively.

Negative inventory growth can occur when units/beds are temporarily or permanently taken offline or converted to another care segment, outweighing added inventory.

3Q 2024 Memory Care Segment Performance

The exhibit below shows the annual absorption rates, defined as the change in the occupied units from the previous year, across all care segments within CCRCs. In the third quarter of 2024, the year-over-year absorption rates for memory care segments led with 5.3%, outperforming assisted living (2.4%), independent living (0.9%), and nursing care (0.5%), and showcasing relatively strong market fundamentals. Memory care segments within CCRCs continued to demonstrate notable growth in demand in recent quarters. The segment has consistently led in absorption rates over the past three years and doubled its absorption growth from levels the year before.

Since the third quarter of 2019, inventory for memory care segments within CCRCs has grown at a relatively faster pace than assisted living and nursing care segments. While independent living has taken the lead in growth over recent quarters, memory care segments within CCRCs continue to demonstrate steady expansion.

In the third quarter of 2024, the occupancy rate for CCRC memory care segments increased for the 10^th consecutive quarter, reaching 89.9%. This rate places memory care ahead of nursing care, which has an occupancy rate of 85.3%, and assisted living at 89.8%, while independent living remains the highest at 91.6%.

In conclusion, the memory care segment in CCRCs has shown notable strength, with the highest absorption rates and positive inventory growth. This sustained momentum underscores the importance of memory care offerings in CCRCs, positioning it as a resilient and expanding care segment within senior housing.

Want to learn more about the drivers of memory care growth in CCRCs? Check out Growing Prevalence of Memory Care in Life Plan Communities.

There has been considerable progress in 2024 in raising the visibility of senior housing as a distinct property type within the broader commercial real estate sector. Earlier this year, the National Council for Real Estate Investment Fiduciaries (NCREIF) began including senior housing in its flagship NCREIF index. The Urban Land Institute (ULI) incorporated key senior housing metrics for the first time in its Fall 2024 Economic Outlook webinar and report, and in September, Trepp featured senior housing in its weekly newsletter in an article titled, “Aging Population Brings Opportunities.” The sector has made great strides in partnering with these influential organizations and in calling greater attention to senior housing. 

As part of these broader efforts, Lonnie Hendry, Chief Product Officer with Trepp, participated in the October NIC Senior Housing Credit Outlook webinar, sharing insights into commercial real estate data that Trepp tracks via their database of securitized mortgages. Trepp analytics offer insights into debt, equity, and operating performance across a range of property types. Mr. Hendry provided specific senior housing data for topics such as delinquency rates, issuance trends, operating performance, and financial benchmarks

Trepp currently tracks roughly $40.8 billion of outstanding senior living debt, which reflects CMBS and agency lending. While not reflective of all capital in the senior housing sector, it represents a significant portion of the lending volume. From that existing dataset, Trepp shared the following key data points as of September 2024:

Hendry also reported on CMBS delinquency rates by major property type. Senior housing falls within the overall multifamily property type within the Trepp system, but for purposes of the Credit Outlook webinar, senior housing-specific rates were reported. As shown in the graphic, in September, the overall CMBS delinquency rate was 5.7%, above the 4.39% reported in September 2023. The senior housing delinquency rate was 1.66%, below both the overall and multifamily figures for the month.

NIC will continue to work with strategic partners such as Trepp to provide analytical insights into loan and market performance for the senior housing sector. More information on the NIC Senior Housing Outlook webinars, including a recording of Lonnie Hendry’s remarks, can be found here.

Market and operating fundamentals are rebounding steadily from pandemic lows, marked by increasing occupancy, robust revenue per occupied room (REVPOR) and moderating expense growth. Fundamentals are being further bolstered by slower construction starts and favorable demographic trends. While recovering, NOI has not fully recovered, leading to short-term valuations challenges and increased financing costs.

The not-yet-stable operating environment leads to higher return expectations, creating a gap between buyers and sellers. Distressed communities are trading at significant discounts to replacement costs, with minimal consideration for future cash flow projections. On the other hand, activity for stable class A communities is beginning to rise as cap rates tighten, a trend likely to persist through the rest of 2024 and into 2025. Upcoming loan maturities, private equity fund expirations, and operator fatigue will present growth opportunities for investors and operators over the next 12-24 months.

Institutional investors are showing increased interest in senior living due to its needs-based market, strong demand, record absorption, and limited supply growth. Investors must build mutually beneficial relationships with operating partners while continuously innovating to improve customer and employee experiences, ultimately enhancing enterprise value.

To sustain values across economic cycles, operators and investors must focus on operating fundamentals that drive NOI and ultimately valuations. The primary focus must remain on driving margins by prioritizing the key pillars of operating cash flow: occupancy, rates, labor, and providing quality care and service to consumers. Operators and owners often are not always fully aligned on financial goals. Managers, whose compensation is linked to revenues, often prioritize occupancy at the cost of rate. Emphasis should be placed equally on all three pillars, making financial decisions that drive the bottom line (NOI/Margin). Investors should explore compensation structures that ensure alignment with financial goals while simultaneously providing more resources to operating partners, allowing them to foster innovation, enhance technology, and hire top talent, all of which will drive bottom-line performance and advance the industry.

In conclusion, the senior living market stands at a critical juncture where attention to operating fundamentals will dictate its resilience and growth. Valuations are influenced by market recovery, demographic trends, and financing costs. Aligning investor and operator goals and leveraging innovative strategies will help the industry enhance value, meet the needs of an aging population, and ensure long-term success and stability.

With a shortage of caregivers and a growing number of older people who need assistance, state-of-the-art technology is essential to the success of senior living properties. The right software platforms can enable the efficient delivery of services and drive positive returns.  

But with so many technology offerings, it can be confusing to sort through the options to find the best solution. Operators need a roadmap, which includes the following basic steps.

1. Assess Current Technology

The first step is to conduct an audit of the property’s current set-up, identifying where outdated or redundant systems are causing inefficiencies or duplicate efforts. The effectiveness of the following six foundational technologies should be the focus of this audit:

• Customer relationship management (CRM) software
• Electronic health records (EHR)
• Emergency call platform
• Payroll and human resources system
• Accounting software
•  Resident engagement program

Before adding new technologies, operators should ask themselves three questions: Will the technology increase revenues? Will it decrease expenses? Will it improve resident outcomes? If the answer is “yes” to two of those questions, then it is worthwhile to take the next step.

At this stage, it is important for operators to identify what results they expect from a new system, how they will pay for it, and how they will address staff members’ concerns about adjusting to the new system.

2. Initiate a Pilot Project

Rather than overhauling the entire technology stack all at the same time, operators should identify one system or process to focus on first. Starting with a system that is not resident-facing, such as payroll, can lower the risks and give staff more time to adapt to new workflows.  

Lessons learned from the pilot project, which should last three or four months, can then be applied to streamline the approach for subsequent technology changes.

Key to the process is a strong internal team that is on board with making a change. When assembling a team, operators should include staff from as many different business units as possible. If only one unit, such as IT or finance, is perceived as driving the change, it will be easier for the rest of the staff to avoid or ignore it.

3. Align Stakeholders

Capital partners can provide valuable input on technology decisions. AEW Capital Management is a long-time owner of senior housing properties. AEW recently conducted its second annual operator survey. Respondents were most interested in technology related to fall management, resident engagement, and robots. Obstacles mentioned included costs, return on investment, and staff training.  

Innovative solutions are emerging to integrate real estate, technology, and healthcare. For example, Senior Living Transformation Company (SLTC) was launched about a year ago by investor Arnold Whitman, head of Formation Capital. SLTC provides properties with long-term capital for state-of-the-art technology, robust healthcare services, and community engagement.

4. Plan for Interoperability Challenges

Operators struggle with software systems that don’t communicate with each other. Nurses and caregivers may have multiple log-ins to enter data into different systems—a big time waster.

Artificial intelligence can help solve the interoperability problem to an extent, but operators must use their position as buyers to push vendors to innovate, integrate, and move forward.

The future belongs to senior living communities that successfully adopt and integrate the latest technology. The best way to get there is to follow a roadmap that has a proven track record.

Note: The roadmap described above was presented during the “Strategic Roadmap for Tech Acquisition and Deployment” panel discussion held at the NIC Fall Conference in Washington, DC, on September 24, 2024.

Senior housing posted a positive total return of 0.71% in the third quarter of 2024, slightly trailing the broader Expanded NCREIF Property Index (Expanded NPI), which posted a total return of 0.83%. Positive income returns for senior housing (+1.15%) were partially offset by negative appreciation (-0.44%), but still resulted in overall positive returns for the quarter. For the Expanded NPI, the third quarter of 2024 was the first quarter of positive total returns in nearly two years. On a year-to-date basis, senior housing returned 1.53%, outperforming the Expanded NPI by nearly 190 basis points.

By senior housing property subtype, both independent living (+1.14%) and assisted living (+0.33%) posted positive total returns in the third quarter. Year-to-date, independent living returned 2.80% while assisted living returned 0.43%. Over the longer term, independent living outperformed assisted living on a total return basis over the one-, three-, and five-year periods. This outperformance may be driven by higher margins typically generated in lower acuity settings such as independent living, which require less staffing and labor expenses than higher acuity settings such as assisted living.

The senior housing income return in the third quarter was 1.15%, in line with the residential sector (+1.11%) and the overall Expanded NPI (+1.20%). The senior housing appreciation (capital/valuation) return was -0.44% in the third quarter, trailing the residential sector (0.00%) and the overall Expanded NPI (-0.37%). The appreciation return is the change in value net of any capital expenditures incurred during the quarter. During the third quarter, the office sector (-2.37%) was the only other property type to record negative appreciation. 

On a longer-term basis, over the 10-, 15-, and 20-year periods, senior housing was the strongest property type except for industrial and self-storage, outperforming the Expanded NPI on an annualized basis by 33, 39, and 312 basis points, respectively. Since the beginning of NCREIF’s senior housing historical time series starting in the second quarter of 2003, income yield drove roughly 60% of senior housing total returns, while price appreciation contributed roughly 40%.

The performance measurements cited above reflect the returns of 217 senior housing properties valued at $11.50 billion in the third quarter. Overall, the number of senior housing properties tracked within the Expanded NPI grew significantly from the 56 properties initially tracked beginning in the third quarter of 2003.

Third quarter 2024 senior housing market fundamentals showed a continued increase in occupancy rates in the 31 Primary Markets for the thirteenth consecutive quarter, according to NIC MAP® data powered by NIC MAP Vision, as demand for senior housing units continued to outpace new supply. As a result, the occupancy rate for senior housing stood at 86.5%, up 0.7 percentage points from the prior quarter.

By property type, there was a 0.5 percentage point increase in the independent living occupancy rate and a 0.9 percentage point increase in the assisted living occupancy rate, and the gap between the two occupancy rates continued to narrow. Overall, market fundamentals are positive and have shown little volatility, posting steady gains over the past three-plus years.

Read our insights on How Senior Housing Operators Can Make Smart Technology Choices.