In case you haven’t heard, there has been a little bit of a storm developing over the release of preliminary data from the upcoming ASHA/NIC Seniors Housing Construction Trends Report 2007. Apparently, the preliminary data shows that for the top 75 metro areas in the country, total seniors housing and care units/beds under construction as of March 2007 was 28.2% higher than March 2006. Specifically, the number of independent living units under construction grew from 11,335 units to 16,023 units in March 2007, with two-thirds of these IL units located within CCRCs. Since CCRCs are mostly pre-leased before they even break ground, if you remove those units from the equation, an average of 75 stand-alone units are under construction in each of the 75 metro markets. That is less than one community per market, and if you assume that 50% of those 75 markets have no new IL units under construction, then you get 150 units for the other 50%. Whoop-dee-do! This is hardly cause for alarm, especially because new construction had been unusually slow in the early years of this decade. Even though occupancy rates may have stalled a bit in the second quarter (some blaming the housing market), they are still strong on a relative basis.
On the assisted living front, there was a 13.3% increase in units under construction to 6,753 units. This represents just 90 units per major metro market area, or about one facility (or two facilities if you also assume half the markets have no new construction). It would be nice to compare these numbers with the last building boom in the late 1990s, but they don’t exist on an apples-to-apples basis. But other than a few markets that may become a bit saturated (and we say may), this does not give us much cause for concern at this point in time. And with what is going on in the debt markets, there may even be a slowdown in new development financing for a while, which would alleviate any concerns about another round of excessive development. We may have more comments when the full report is disclosed to everyone next month.
Kellie Moeller said,
September 11, 2007 @ 10:05 pm
I am new to your website and enjoying the information. My question is:
How would you define whether or not a market is saturated?
Thanks.
Steve Monroe said,
September 12, 2007 @ 1:26 pm
That is a very good question. I am not sure that I have seen a definition of “market saturation,” but it is a bit like that now retired Supreme Court judge commenting on pornography: “I can’t define it but I know it when I see it.” All kidding aside, I would guess saturation occurs when occupancy in a market drops below 90% (for IL and AL), and new development does not fill, usually stalling at 70% to 85%, although that may also reflect a poor location of a development or just a bad facility. I am sure feasibility consultants have a definition of lack of demand, meaning a certain percentage of income and age qualified people in a market is less than the number of units operating and under construction, which would say the market is “saturated.” But that, too, is always different market to market, because different areas of the country have different attitudes regarding retirement housing.
Andrea Griffin said,
October 12, 2007 @ 5:10 am
I am also new to your site and find it very interesting.
Would you say that now is not the time to start investing in senior living facilities, given the slow down that appears on the horizon?
Steve Monroe said,
October 12, 2007 @ 1:13 pm
The slowdown will be more in the acquisition side of the market. After the market peaked this summer, the acquisition market is turning from a seller’s market to a buyer’s market, so over the next year a buyer may be in a good negotiating position. The real time to buy, of course, would have been three to four years ago before property values soared. But the industry will do well for many years.