The senior housing stabilized occupancy rate for the NIC MAP Primary Markets edged up to 84.7% in the May 2023 reporting period, up 0.1 percentage points (pps) from the April 2023 reporting period on a three-month rolling basis, according to intra-quarterly NIC MAP® data, released by NIC MAP Vision. From its pandemic record low of 80.3% in June 2021, senior housing stabilized occupancy increased by 4.4pps but remained 4.7pps below pre-pandemic March 2020 levels of 89.4%.

Stabilized occupancy – defined by NIC MAP Vision as the occupancy of properties that are (a) at least two years old, or (b) if less than two years old, properties that have achieved occupancy of at least 95.0% since their opening – still has more room to make up in order to reach pre-pandemic levels, when compared to the all-occupancy rate, which is currently 3.6pps below March 2020 levels.

The senior housing market is experiencing a pronounced change in occupancy dynamics. The May 2023 data shows that the gap between the stabilized occupancy rate, currently at 84.7%, and the all-occupancy rate, slightly lower at 83.6%, has reached its smallest point since 2014, standing at 1.1pps.

This narrowing gap indicates intense competition among senior housing properties, particularly those that have recently opened and are still in the lease-up phase. These newly opened properties are actively attracting residents and taking a share of the market from stabilized properties, despite higher asking rates in general.

Factors like the design and appearance of these new properties could be influencing residents’ choices. However, it’s important to consider that novelty and attractiveness alone do not guarantee success. Newly opened properties may not have had the opportunity to establish a solid reputation and may lack an experienced staff or team who have worked together effectively for a significant period of time.

The current trend also helps explain the overall recovery in occupied units, even though occupancy rates remain below pre-pandemic levels.

By Majority Property Type. At 86.3%, the stabilized occupancy rate for majority independent living (IL) properties for the NIC MAP Primary Markets has remained unchanged for four consecutive reporting periods beginning in February 2023. In the May 2023 reporting period, stabilized occupancy for independent living was 1.0pps above the all-occupancy rate (85.3%). For majority assisted living properties (AL), the stabilized occupancy rate for the NIC MAP Primary Markets was up 0.2pps to 83.1% from April 2023, and is now 1.3pps above the all-occupancy rate for assisted living (81.8%).

The inventory of majority independent living properties for the NIC MAP Primary Markets increased by 1.7% or 5,777 units from year-earlier levels in the May 2023 reporting period. Assisted living inventory increased by 1.3% over this same period. This was the smallest year-over-year inventory gain since NIC MAP Vision began reporting the data in 2005.

Stabilized Occupancy Across Select Metropolitan Markets. The stabilized occupancy rate for majority independent living properties increased or remained stable in 16 of the 31 Primary Markets in the May 2023 reporting period compared with April 2023. At 85.8%, Detroit independent living occupancy saw the largest increase from the prior month, up 0.7pps, but remained 4.2pps below March 2020 levels. Las Vegas independent living occupancy had the largest decline from April 2023, falling by 1.5pps in May 2023 to 85.3% and is now 5.7pps below pre-pandemic March 2020 levels.

For assisted living, the stabilized occupancy rate increased or remained stable in 25 of the 31 Primary Markets in May 2023. At 81.3%, Cincinnati assisted living stabilized occupancy saw the largest increase, up 0.9pps in May 2023 but still 4.4pps below March 2020 levels. The assisted living stabilized occupancy rate in San Jose had the largest decline and fell 1.5pps from the prior reporting period to 80.9% on a three-month rolling basis. San Jose stabilized occupancy remained 10.9pps below pre-pandemic levels, the largest gap across the 31 NIC MAP Primary Markets and property types.

Keep track of the most timely and comprehensive 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, even as senior housing markets sustain a fast pace of evolution and adaptation.

The senior housing sector posted a total return of 0.11% in the first quarter of 2023, up from a decline of -0.88% total return in the prior quarter. Short-term total returns for senior housing outperformed the broader NPI, which posted a total return of -1.81% in the first quarter. Positive income returns for senior housing were partially offset by negative appreciation, which reduced the overall investment return. In comparison, negative appreciation for the NPI more than offset positive income returns, driving negative total returns for the quarter. 

The senior housing income return in the first quarter was 0.88%, stronger than the hotel (0.82%) and industrial (0.83%) sectors, but below the overall NPI (1.01%). The senior housing appreciation (capital/valuation) return was negative for the third consecutive quarter at -0.76% but improved from the prior quarter’s return of -1.75% and better than the apartment sector’s appreciation return of            -3.05%. Overall, current economic and capital market conditions drove negative appreciation returns in all sectors except hotel (+1.47%). 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 ten-year return for senior housing (9.33%) was the strongest of the main property types, except for industrial (15.64%), and outperformed the NPI ten-year annualized total return of 8.34%. Income returns for senior housing (5.17%) surpassed the NPI (4.64%), as did the appreciation return (4.02% vs 3.58%). 

The performance measurements cited above for senior housing reflect the returns of 205 senior housing properties valued at $11.15 billion in the first quarter. This was the highest property count and market value in the NCREIF time series for senior housing. 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. 

First 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 first quarter. As a result, the occupancy rate for senior housing stood at 83.2%, up 0.3 percentage points from the prior quarter and 5.4 percentage points from its low point, but still 4.0 percentage points below its pre-pandemic level of 87.2% 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:  NCREIF, NIC Analytics 

Source: First Quarter 2023 NCREIF Performance Report, NIC Analytics

The Bureau of Labor Statistics (BLS) reported that nonfarm payrolls rose by 339,000 in May 2023, in line with the average monthly gain of 341,000 over the prior 12 months, but above the upwardly revised gain of 294,000 in April and 217,000 in March. Market expectations had called for a gain of 195,000 jobs. Of note, revisions added 93,000 positions to total payrolls in the previous two months.

Healthcare added 52,000 jobs in May, like the average monthly gain of 50,000 over the prior 12 months. Employment in nursing care facilities grew by 2,900 jobs from last month and 54,000 from year-earlier levels and stood at 1.402 million positions. Jobs increased by 1,700 positions in CCRC and assisted living facilities in May and were up by 55,600 from year-earlier levels to 946,600 jobs. 

Separately, the BLS also reported the unemployment rate rose to 3.7% in May, up from 3.4% in April when it stood again at its lowest level since 1969. The May level was the highest since October of 2022, but notably, the rate has hovered between 3.4% and 3.7% since March 2022. The increase in the jobless rate reflected an increase in the civilian labor force (130,000) coupled with a decline in household employment (310,000). The unemployment rates peaked at 14.7% peaked in April 2020 at the height of the pandemic.  

Average hourly earnings for all employees on private nonfarm payrolls rose by $0.11 in May to $33.44 or up 0.3% from the prior month. This was an increase of 4.3% from year-earlier levels, slightly less than in March at 4.4%.  

Today’s report is a bit mixed, with wage growth moderating, but still strong, the labor market weakening per the rise in the unemployment rate but offset by the large increase in payroll jobs. Its likely that the Fed will “skip” an increase in the fed funds rate at its upcoming June 13^th and 14^th FOMC meeting as it pauses to see how the large and frequent rate hikes in the past 15 months take hold and as it waits to see if there is further fallout in the banking system. The Fed has raised the fed funds rate 5 percentage points to a range of 5.0% – 5.25% since March 2022 in an effort to combat inflation. This is the highest rate in 16 years. The Fed is looking for evidence of a softer labor market to help ease wage pressures and prevent a wage/price inflationary spiral from occurring. 

The underemployment rate was 6.7% versus 6.6% in April. Among the major worker groups, the May unemployment rates were 3.3% for adult women, adult men (3.5%), teenagers (10.3%), Whites (3.3%), Hispanics (4.0%), Blacks (5.6%), and Asians (2.9%). The number of long-term unemployed (those jobless for 27 weeks or more) was essentially unchanged at 1.2 million in May. These individuals accounted for 19.8% of all unemployed people. The labor force participation rate held steady at 62.6% in May, unchanged from April and up from 62.5% in February, which followed three prior monthly increases in the rate. It was below the February 2020 level of 63.3%, however.  

NIC MAP Vision released its latest Skilled Nursing Monthly Report on June 1, 2023. The report includes key monthly data points from January 2012 through March 2023.

Here are some key takeaways from the report:

Skilled nursing property occupancy decreased in March, after increasing for two months in a row. It declined 27 basis points from February to end the month at 81.0%. There has been positive momentum in occupancy throughout 2022 and the first couple months of 2023. It is up 6.3 percentage points since the low (74.7%) point reached in January 2021. However, staffing in the sector is still a significant burden on skilled nursing operators and is limiting additional admissions in many markets around the country. Occupancy is down 7.8 percentage points from the pre-pandemic February 2020 level of 88.9%. As staffing and general inflation pressures persist, operations for many operators will be under pressure but the long-term demand for skilled nursing services is expected to grow over time.

Both Medicare revenue mix and the revenue per patient day (RPPD) increased in March. However, both are down slightly from December 2022. Medicare revenue mix is down 251 basis points from the most recent in high in February 2022 which was a time when increased cases of COVID-19 resulted in additional need for utilizing the 3-Day rule waiver and per day reimbursement for COVID-19-positive patients. Medicare revenue mix ended March at 22.2%. Medicare RPPD ended March at $591 and is up 0.78% from one year ago. Meanwhile, Managed Medicare revenue mix was down 28 basis points to 11.4% in March. However, this is 220 basis points above the pandemic low of 9.2% set in May 2020.

Managed Medicare revenue per patient day (RPPD) increased slightly in March, but it is down 0.8% from March 2022. Depending on an operator’s business model, the continued decline in managed Medicare revenue per patient day can pose a challenge as the reimbursement differential between Medicare fee-for-service and managed Medicare has increased during the past two years. However, some operators see opportunity to capture patient volume with the growth of managed care. Medicare fee-for-service RPPD ended March 2023 at $591 and managed Medicare ended at $478, representing a $113 differential. In March of 2021, the differential was $90.

After increasing slightly in the month of February, Medicaid patient day mix was flat, ending March at 64.9%. However, it has increased 188 basis points from the pandemic low of 63.1% set in February 2022. Meanwhile, Medicaid revenue mix declined 45 basis points from the prior month, ending March at 50.1%. One element of the Medicaid revenue share of a property’s revenue is RPPD and that declined 0.23% from February. However, it up 3.44% since last year in March 2022.

Get more trends from the latest data by downloading the Skilled Nursing Monthly Report. There is no charge for this report. 

The report provides aggregate data at the national level from a sampling of skilled nursing operators with multiple properties in the United States. NIC continues to grow its database of participating operators to provide data at localized levels in the future. Operators who are interested in participating can complete a participation form on our website. NIC and NIC MAP Vision maintain strict confidentiality of all data received.

After facing down a pandemic for three years, the senior housing industry now faces a new reality—some parts good and some not so good.   

On the plus side, the occupancy rate is improving. The labor market is tight, but better than it was a year ago. New inventory growth is relatively limited.  And, inflation and expenses continue to rise, although at a slower pace 

On the less positive side is a lot of uncertainty, which few business leaders like. They wait for clues on whether interest rates will continue to climb. Debt financing is scarce. The stability of the regional banks, a source of loans for the industry, is a concern. Added to that, economists think a mild recession seems more likely than not in the next 12 months. 

So, what do current market trends tell us about where the industry is headed?  

A panel of experts recently took a deep dive into that question during a NIC Leadership Huddle webinar. The conversation was led by NIC Chief Economist Beth Mace. She was joined by three senior living executives with different roles and market perspectives.  

Putting the conversation in context, Mace presented a detailed look at current economic conditions and the commercial real estate and senior housing markets. She said that inflation, the direction of interest rates, and the impact of rate hikes to date remain a concern though senior housing market fundamentals are recovering. 

Join the next complimentary NIC Leadership Huddle Webinar

“Prominent Real Estate Research Directors Discuss

Market Trends and the Economic Outlook”

June 13, 2023, 2:00 PM ET

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Commercial Credit Freeze 

The capital markets are a worry.  

“It’s incredibly inefficient to finance something,” said panelist Aron Will, vice chairman and co-head, National Senior Housing, CBRE Capital Markets. A large slice of equity capital has returned to the market, but debt financing is difficult to secure. 

The national banks have been out of the lending market since last summer and the regional banks have liquidity problems. It’s especially difficult to refinance or trade value-add type properties—the projects that need the most help. “There’s just not a lot of deals that qualify,” said Will.  

The general slump in commercial real estate is having a spillover effect on senior housing, according to panelist Steve Blazejewski, senior portfolio manager and managing director at asset management firm PGIM. Institutional investors have hit pause waiting for the liquidity crisis to pass. “Nothing is transacting,” said Blazejewski.  

Good Things Happen Here 

From an operator’s perspective, Kris Woolley expressed a big sense of relief. “It feels a lot better today,” said Woolley, founder and CEO, Avista Senior Living. “COVID was just overwhelming.” 

He said his staff of 1,100 people is in a better frame of mind now. Reliance on expensive staffing agencies has decreased dramatically. Rents are being raised without pushback from consumers.  

Fewer new communities are opening so there’s less competition. Net operating income is up year-over-year. “Despite the very difficult capital markets issues, there’s a lot of good things going on,” he said.  

Avista is fielding more inquiries about management assignments from institutional owners with troubled properties. Woolley said that a reset in valuations could provide an opportunity for operators to seek some form of ownership. Regional operators could be the winners. “The market is creating a much deeper bench of mid-sized, regional operators,” he said.    

Recession Apprehension 

The panelists expect more trouble in the short-term but a brighter outlook in the years ahead as baby boomers age into senior housing and care.  

For now, the continued disruption in the capital markets and the prospect of a recession worry the panelists. A lot of senior housing properties have floating rate debt and higher interest rates are sapping any gains being made in net operating income. “It’s difficult,” said Woolley.  

Some troubled properties are going back to the lenders. “What happens then?” asked Mace. The panel agreed that lenders do not want to operate senior housing properties. 

Blazejewski expects write-downs, loan covenant modifications and property sales at lower prices. Banks are already asking equity providers to put in more capital to refinance loans. But opportunities could emerge for investors with capital to buy loans.    

Older properties represent a big challenge. “You can’t put enough CapEx into them to keep them competitive,” said Will. As an alternative, older properties could be retooled to provide a more affordable product for the underserved middle market.  

Beyond the next 12-18 months, the outlook for senior housing is bullish. New construction is down 54% from its peak. The aging population is a big plus. Consumers are also more aware of the senior housing product than they were 10 years ago.  

Another bright spot is senior housing’s fundamental strength. Annual rent growth has recently topped 5%. “That’s a remarkable statistic,” said Will. “The resilience of this asset makes it a shining star.” 

To stay current on senior housing market conditions during these turbulent times, visit NIC’s new Senior Housing Market Conditions Hub for insights and resources on factors influencing the outlook for senior housing and care.  

The next NIC Leadership Huddle webinar will be held June 13. Prominent real estate research directors will discuss market trends and the economic outlook.  Register now!