Forward-looking outlook on senior housing market fundamentals and dynamics includes demographic trends, construction activity, supply and demand, absorption-to-inventory-growth velocity (AIV Ratio), occupied penetration rates, and occupancy rates.
NIC Analytics launched the first segment of the new NIC Senior Housing Analyst Review and OutlooK (SHARK) report series. The NIC SHARK report series is intended to deliver actionable, data-informed insights, and forward-looking perspectives for senior housing capital providers, operators, and developers to prepare for the future and better serve America’s older adults.
This NIC SHARK first segment report reviews with a forward-looking outlook (2024-2026) senior housing market fundamentals and dynamics, including demographic trends, construction activity, supply and demand, absorption-to-inventory-growth velocity (AIV Ratio), occupied penetration rates, and occupancy rates in the 99 NIC MAP Primary and Secondary Markets and by region.
To learn more, download the NIC SHARK report.
Key Takeaways:
New Senior Housing Construction Lagging: The current pace of new senior housing construction is not keeping up with population and demand growth. While encouraging signs are emerging in the Mid-Atlantic region, where construction activity is shifting towards green territory (positive growth) compared to 2019, the industry needs to focus more on efficiency developments, especially in construction, to reduce costs and timelines and meet the growing demands in the years ahead.
Projected Supply Falling Short: Assuming the completion of all units currently under construction within three years, the projected inventory is expected to increase by 4.1% or 44,000 units from 2023 to 2026, representing half to one-third of the projected demand growth. This shortfall is compounded by aging stock and prolonged construction timelines, which are likely to drive a trend towards repurposing buildings and increasing Capital Expenditures to enhance efficiency, competitiveness, and appeal to future residents.
Demographics are Destiny: The pace at which Americans are reaching 80+ is staggering. It is projected that from 2023 to 2026, an estimated one million additional 80+ households will emerge, reflecting a Compound Annual Growth Rate (CAGR) of 3.4%. This figure is expected to double to two million in the subsequent three years, 2026 to 2029, with a CAGR of 5.8%. These growth rates vary across regions within the 99 NIC MAP Primary and Secondary Markets.
Anticipated Increase in Occupied Penetration Rates: The recent surge in demand, particularly in need-based segments, e.g., assisted living and memory care, suggests a new normal rather than pent-up demand. Senior housing occupied stock is projected to grow by 8% to 14% (+75,000 to 128,000) from 2023 to 2026, two- to threefold the projected inventory growth. At this rate of absorption and considering demographic growth rates, occupied penetration rates are anticipated to rise across all regions by 2026.
Improved Economics with Sustained Positive Momentum: 2024 is expected to mark the end of a three-year pandemic occupancy recovery in senior housing market fundamentals. The robust absorption-to-inventory-growth velocity (AIV ratio), significantly exceeding the AIV threshold, has been the driving force behind the increase in occupancy rates in 2022 and 2023. Continued strong momentum is anticipated in the AIV ratio over the next three years. This positive trend is projected to set new occupancy records and lead most regions to achieve occupancy rates in the mid-90% range by 2026.
Call to Action: Senior housing is on the cusp of a notable upswing, with occupancy expected to continue improving over the next three years, in some cases nearing maximum capacity by 2026. This growth is driven by anticipated demographics and demand expansion. Yet, challenges may arise in meeting this surge, including aging inventory, potential supply shortfalls, and lengthy construction timelines. Seventy-five percent of new senior housing properties take nearly three years to develop from groundbreaking, excluding pre-construction phases. The key question is: Will senior housing stakeholders capitalize on these trends and proactively prepare for the future, or will they maintain a passive wait-and-see stance?