Friday Feature: Sr. Living Occupancy Update + (plus)

Yesterday we got a good look at the status of the SNF industry via a data report from CLA. Today, as the week ends, we can look at the broad industry as a whole and where occupancies are trending.

NIC (National Investment Center) released its occupancy snapshot for senior living for Quarter 3. That summary is available here:3Q23-NIC-MAP-Market-Fundamentals-PDF

Basically, the trend of recovery remains and if progress stays steady, the industry should see occupancy stabilize at or modestly above pre-pandemic levels in 2024.  Two reasons for this recovery.  First, demand is returning, and it is decent. Second, because of construction cost increases in capital and materials, new inventory is almost non-existent thus affording favor to existing inventory. 

If there is any sourness to the outlook, it remains around financial performance.  While occupancy gains are good, costs for operations remains high and climbing.  The largest cost driver remains labor as wage increases coupled with ongoing shortages across the industry, are pushing operating expenses higher.  Labor of course, for a service intense business, is the largest non-capital or interest expenditure (typically 50% or more in senior living of the expense budget). 

Some quick points from the report.

  • Majority IL projects are performing the best. AL and SNF are approximately the same at occupancy rates of 82.5%.
  • Rent growth in terms almost exclusively of price, is 5.4% on average with AL running at 6%.  This trend is forecasted to continue into 2024.
  • Inventory growth is just a shade above one percent for IL and AL and negative for SNF (inventory is shrinking).
  • Transaction volumes remain quite a bit below pre-pandemic levels.

The PLUS (+) part of today’s post is some updated data on the residential real estate market courtesy of NAR (National Association of Realtors). The residential real estate market does have a demand function for senior housing, particularly entry fee/Life Plan/CCRC communities.  The typical source for the entry fee proceeds comes from the net sales proceeds of the primary residence of a senior (residential real estate).  The full NAR (existing home sales) slide show report is here: ehs-08-2023-summary-2023-09-21

What we are seeing in terms of the residential real estate market is a continued trend toward reduced liquidity or in other words, declining sales.  This is true in every region of the country for every price category except for the Midwest and South where homes with values above $1 million have increasing sales.  Unfortunately, the median price range of $416K continues to see sales declines.  

The Life Plan/CCRC occupancies have held reasonably well and today, are at pre-pandemic levels.  The question going forward however, is will that trend continue and will future sales of new contracts be hampered by the sour real estate (residential) market.

We are seeing a touch of valuation disconnect today such that prices, while holding relatively high, are getting challenged by buyers and appraiser alike, in some markets.  If, and likely so, interest rates remain high for an extended period (well into next year), sales will stay soft, and values (prices) will be under-pressure.

Demand for Life Plan/CCRC residency is highly elastic. This means that buyers have many options at various price points along the residency continuum.  If as is the case, home sales stagnate and prices erode, it is possible, as in the late 2000s and early 2010s, that Life Plan sales will weaken and thus, occupancies as well.

Finally, the Bureau of Labor Statistics (BLS) jobs report came out today showing continued job market growth – plus 300K new jobs.  This was nearly double expectations.  Important to note however, is lots of the growth was leisure, government, and. healthcare jobs and second jobs (leisure and hospitality).  Wage growth remained flat (problematic given ongoing inflation drivers in energy, rent and food).

The BLS report covers two surveys, each need to be reviewed to get the overall economic picture of labor. While the establishment survey (business) showed above expectation growth, the household survey did not.  It was unchanged from the prior month. 

Unemployment and participation remained flat 3.8% and 62.8% respectively.  I’ll dig into the details of the report over the weekend and provide a full recap on Monday or early, next week. Until then, TGIF!


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