The senior living industry is ripe for a robust uptick in inventory growth within four years, according to Sally Heffernan, senior vice president at Plante Moran Living Forward, the senior living development consulting branch of Plante Moran Cresa and an affiliated entity of Plante Moran.

The recent trend of relatively little development, however, is likely to continue through 2025, she said.

“The COVID-led recession in 2020 is projected to limit development over the next few years, furthering this trend. We estimate that barely 22,000 units are predicted to be delivered in 2022, a continuation of the slowdown continuing throughout 2021,” Heffernan wrote. 

Occupancy rates decreased as the pandemic came to fruition, but move-ins started to slowly increase by last summer, according to NIC MAP data. 

“Second quarter data confirms anecdotes that occupancy at many properties improved as move-ins accelerated thanks to limited property-level COVID-19 infections,”  National Investment Center for Seniors Housing and Care Chief Economist Beth Burnham Mace stated in July.

Silver lining

The good news, according to Heffernan, is that demographic outlooks are likely to reverse construction trends as early as 2026. The baby boomer cohort, born between 1946 and 1964, is expected to drive demand for senior housing development, making the industry ripe for growth. The oldest of the boomers will turn 80 in 2026, “beginning a trend that will increase the 80+ cohort 115% from 13 million in 2020 to 28 million in 2040. This is compared to an 8% growth rate for the rest of the population,” she said.

At the same time, Heffernan said, the age cohort of family members who would presumably care for their aging relatives will decline. 

“With fewer caregivers, more seniors will need to seek housing and care outside of their home,” she said. 

Heffernan added that over the past 20 years, actual senior living units increased 436,000 at a 3.4% annual growth rate in the top 140 metropolitan areas. 

If historical senior housing utilization rates continue over the next 20 years, she said, then projected units will increase 1 million at a 4.7% annual growth rate, effectively doubling senior housing demand from 2020 to 2040.

“This senior living inventory forecast shows significant opportunity for those who can weather the immediate disruption and make strategic decisions for the future,” Heffernan said.

A word of caution 

Even with the encouraging senior living development forecast, Heffernan cautioned developers not to dive into new construction too zealously. She said they should bear in mind the lessons of the 1990s and 2010s, when overbuilding was a significant problem and resulted in many failed projects. 

Secondly, Heffernan said, “organizations should be careful not to take on too much debt to protect from any downside. They should also evaluate and research alternative funding sources for any new project, such as economic or development incentives and tax programs.”