Analyst Sees Potential Assisted Living ‘Over-Supply’ In Some Markets…

Some analysts are wondering whether assisted living construction is due for a dip in key markets. (Photo courtesy Wiki Media Commons.)

Bill Myers

Good morning, ProviderNation. The fine folks at the National Investment Center for the Seniors Housing & Care Industry have crunched the numbers, and they have some slight concerns they’d like to share.

Particularly, they’re wondering whether assisted living construction is due for a business slump. “As of the second quarter, construction represented 6.1 percent of existing inventory, more than 200 basis points above the prior market cycle’s peak,” NIC Senior Analyst Christopher McGraw writes in the group’s most recent newsletter. “Between annual rates of inventory growth accelerating to nearly 5 percent and the flu season, occupancy has declined by 90 basis points since the fourth quarter of 2014 and is down 40 basis points from a year ago.”

Highlighted By Over-Supply

Overall, McGraw wonders whether the assisted living construction market is “nearing the point in the cycle that traditionally is highlighted by over-supply.”

As fire bells in the night go, McGraw’s analysis is hardly “irrational exuberance.” In fact, he tells me that worries about over-supply are driven by just a few markets—mostly in Texas.

“Dallas, San Antonio, Houston and Austin not only have high rates of construction, but a lot of units coming in,” he says.

The End Isn’t Near

That doesn’t mean that collapse is imminent.

“Houston in the past couple of years has had a lot of inventory come online, and there were predictions that there would be a lot of vacancy. But it absorbed the vacancy,” McGraw says. “The metro numbers could look large, but the projects could be scattered through the area. Once everything breaks ground and open, it could lift the market up.”

In fact, McGraw’s numbers also show that, despite the high rates of construction, rents in assisted living properties have held steady.

It is notorious that the baby boomers are getting on, but McGraw wants to remind the public that the steady growth in senior housing has little to do with boomers. The average age of entry into assisted living in the markets he studies is 82-86, McGraw says.

“It’s really their parents,” he says of baby boomers. “They really won’t hit the target market until the latter part of the next decade.”

Bill Myers is Provider’s senior editor. Email him atwmyers@providermagazine.com. Follow him on Twitter, @ProviderMyers.

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