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New Construction on Senior Housing Continues to Outpace Demand

The supply of senior housing is expanding rapidly across the Sunbelt states, sparking concerns that builders may be outpacing demand.  This building spree – primarily focused in southern states like Florida, Texas, Arizona, and California - could spell trouble for real estate firms specializing in senior housing due to the danger of higher vacancy rates and lower annual rent increases.
The occupancy rate for all senior housing in major metropolitan areas fell this Spring for the second consecutive quarter according to the National Investment Center for Seniors Housing and Care (NIC) - an Annapolis-based nonprofit that tracks the senior housing market. During the second quarter of 2015, the number of new assisted living units under construction in the cities of Atlanta, Dallas, and Chicago - where firms like Heath Care REIT are focused - represented more than 10% of the existing inventory.
By comparison, the figure for the 31 largest U.S. markets currently sits at 6.4% overall. This is a drastic increase from 2011, when new assisted living units under construction represented only 3.4% of existing inventory. According to NIC data, some smaller cities - San Antonio for example - are experiencing even greater growth. In these smaller markets, the occupancy rate for assisted-living units - a type of senior housing aimed at clients who are no longer willing or able to live entirely on their own - was 88.4% in the second quarter, down 0.3 percentage points from the same period of 2014 and 0.2 percentage points from the previous quarter. 
However, not everything is gloom and doom for companies with facilities aimed at seniors. Amenities like high-quality dining catering to well-heeled clients as well as staff nurses do their part to insulate these facilities from the flood of new construction coming onto the market. To hedge, companies have begun to diversify their portfolio of properties by moving into markets with less new construction activities.
Another bright spot noted by real estate executives and analysts alike is the wave of Americans born after World War II who will retire in coming years; analysts say this will expand the pool of potential clients. To put this into perspective, the Social Security Administration estimates that 9,600 people a day will turn 65 in 2015; up from 7,800 a day in 2010.