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The confluence of near-term pandemic-induced challenges and long-term potential in the senior living and skilled nursing facilities sectors presents a window of opportunity for investors, according to a special report from investment firm Marcus & Millichap.
Signs of recovery in the sector appeared in the third quarter in the form of increasing occupancy, move-ins and vaccinations, and population trends indicate robust demand on the horizon, potentially outpacing supply and powering occupancy improvement, authors said. Housing starts are down almost 30% over the past five years, they added.
“Divergent supply and demand trends paint a bright picture for the future of seniors housing and skilled nursing facilities,” the authors wrote. Aging baby boomers have ample savings, potentially bolstering spending on healthcare expenditures in the future, they added.
But concerns over new strains of COVID-19 are impeding momentum, creating uncertainty and caution, and the unprecedented labor shortage continues to plague operations, according to the report.
For some investors, the timing might be right to reenter the marketplace after moving to the sidelines during the pandemic, the analysts wrote.
Investment sales volume in the first three quarters of 2021 already has matched total 2020 activity, according to the report. Potential interest rate hikes and tax changes on the horizon also could drive sales activity in the near term, the authors wrote.
When it comes to senior living (independent living, assisted living and memory care) occupancy, assisted living saw the biggest drop from 2019, with staffing shortages and vaccine mandates negatively affecting operations through reduced admissions, according to the report. Occupancy recovered faster in memory care, where the rate jumped 300 basis points from July through September. Continuing care retirement communities were least affected by the pandemic, sustaining an occupancy rate above 84%. Independent living had the second highest occupancy rate in September, at 80%.
But demand is driving up average rents, which are up by more than 1% on an annual basis in all senior living levels of care. Memory care and assisted living are leading the trend with rent increases of 2.6% in the third quarter.
“Seniors housing and skilled nursing facilities remain a key piece of the care spectrum, and the current environment may present unique favorable circumstances for investors,” the authors wrote.
Read more about the report on the website of sister media brand McKnight’s Long-Term Care News.
