Senior Housing News and Lument conducted a survey (November of 2023) of senior living organizations and executives regarding their outlook for 2024. They consolidated the responses into a report. That report is available here: 2024-shn-lument-outlooksurveyreport-vf.original
The highlights from the report are below. The general consensus of respondents was a positive outlook (87%) for 2024, buffered mostly by occupancy trends (positive) and an outlook that the worst of the economic trends are behind us. Expectations for operating margins ranged from 1% to 4%.
- Staffing will remain as the greatest challenge for providers for 2024.
- Despite the challenges, providers (87%) are optimistic about the environment in 2024.
- Optimism is tied to improving occupancy. Seventy-two percent of respondents believe the national occupancy rates will increase in 2024, with 65% expecting a rebound to pre-COVID occupancy levels by the second half of 2024 or
2025 at the latest (Note: Latest NIC for 4th quarter occupancies indicates that occupancy for senior living has rebounded and marginally exceeded pre-pandemic levels on a national basis). - M&A activity will improve in 2024. Among respondents, 55% reported that their company plans to buy senior housing assets in the next year, with assisted living (AL), independent living (IL) and active adult being the most attractive investment categories. Private is expected to be the biggest buyer. (Note: There has been a lot of scrutiny on private equity investments and holdings in healthcare (hospitals, SNFs, etc. – https://rhislop3.com/2024/01/02/jama-study-private-equity-ownership-and-hospital-outcomes/ )
- The middle market will be a strong growth focus for 2024. I have written on this topic a lot lately, focusing on the challenges the industry has with affordability, given the overall wealth characteristics of the current and coming, senior adult cohort. https://rhislop3.com/2023/07/07/friday-feature-affordability-is-an-issue/
- Rising interest rates (or higher rates) remain a concern and a focus for providers. On a scale of 1-5, with 5 being the most significant, respondents rated the role of rising interest rates in their 2024 business strategy a 4.
- In terms of new construction in 2024, 22% expect and increase, 39% expect a decrease, and 39% expect a status quo – no change from the present state which, is (development) stagnant.
- Capital access/financing sources remain predominantly banks or finance companies (42%) followed by private equity at 31% with institutional sources trailing significantly at 13%.
- In terms of valuations, the majority of responses (41%) expect no change, 32% expect a rise, and 27% expect a decrease. Valuations are sensitive to transactions and rising margins/income levels. Occupancy does impact a valuation somewhat, provided that increased occupancy translates into increases in income.
Providing context to the above, I expect a slightly better outlook for 2024 but I remain concerned about the overall impact that could come from a very, very mixed economic picture. The leading indicators (bond yield curve, Leading Economic Index/Conference Board) point to a recession. The Federal Reserve recession forecast suggests a late second quarter or early third quarter. More signs via recent stock performance via the shipping sectors suggests economic activity has slowed significantly (Fed Ex, UPS). The real estate market also remains fundamentally stuck in neutral (no residential sales activity of any significance) per the recent Case Shiller report as prices continue to run higher, but sales volumes remain low. For Independent and Life Plan communities, residential real estate market conditions can directly impact occupancy gains via unit sales.
I do agree that labor supply conditions will continue to be a major obstacle to performance. In rural areas, this element (labor supply) is a challenge so great that survival, forget any other elements, is at stake. I’ll take a deeper dive into rural senior living/post-acute outlooks and current conditions in an upcoming post.