Seniors Housing Gains Momentum

A less volatile housing market and unemployment picture contributed to lower vacancies and higher rents and sale prices for seniors housing in 1Q11. Marcus and Millichap’s First Half 2011 Seniors Housing Report forecasts increased occupancy in three of the four seniors housing sectors -- independent-living centers, skilled-nursing facilities, and continuing-care retirement communities. Due to an increase in supply, assisted living is the only sector where occupancy is expected to fall.

Independent- and assisted-living facilities faced pressure from the residential housing market. Many seniors were waiting to regain some value before selling their homes and moving into these types of facilities. The moderation of housing prices contributed to 87.7 percent occupancy in independent-living facilities in 1Q11 -- up 50 basis points from a year ago --- and 88.4 percent occupancy in assisted-living facilities, marking a 90 basis-point increase from 1Q10. While average rent in assisted living remained flat over the past year, independent-living facilities posted a modest 0.9 percent rent increase. The report forecasts rents to increase this year by 0.8 for assisted-living facilities and 1.1 percent for independent-living facilities.

Skilled-nursing facility occupancy increased by 10.0 basis points in 1Q11 to 88.5 percent, which the report attributes to "individuals recently re-employed moving forward with procedures that require short-term rehabilitative services." The uptick in occupancy led to a 3.3 percent increase in rents from last year. Despite the positive rent trend, skilled nursing facilities face competition from expanding and increasingly sophisticated services offered at assisted-living facilities.

Continuing-care retirement communities also are benefiting from housing price moderation. Occupancy for rental-based CCRCs increased by 50 basis points, driving a 20 basis-point increase in overall occupancy in 1Q11 to 89.3 percent. Occupancy at fee-based CCRCs remained flat from quarter to quarter, while entrance fees increased by 2.3 percent to $253,872, despite more than 70 percent of operators not increasing fees.