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Rapid Expansion of Senior Housing Raises Concerns of Demand Being Outpaced

09/23/2015

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With senior housing being developed at a fast pace, some experts in real estate have serious concerns that supply will ultimately outpace demand coming from baby boomers. In all 31 major markets, occupancy for senior housing dropped for the second quarter in a row. As a result, concerns were raised that perhaps builders are getting ahead of themselves.

Current Building Spree

The building spree for senior housing could be due to higher vacancy rates coupled with lower rent increases. Because several large U.S. corporations that own a significant number of senior housing have experienced big tumbles this year, investors worry about interest rates being increased.

Assisted living units for seniors are being built so fast that experts feel demand cannot keep up. In Salt Lake City, 761 units are currently under construction; in San Antonio, the number is 684; and in Sacramento, there are almost 1,000 units being built. This trend is being seen throughout the country, which increases concerns even more.

As explained by Kevin Tyler, an analyst with Green Street Advisors who tracks this sector of real estate, there has been no slowing of construction, making this an issue. However, companies have different advantages that could offer some protection, such as offering discerning clients higher-quality food, better nurses, and more amenities.

Baby Boomers Retiring

People in the U.S. born after WWII are retiring, expanding the pool of potential clients for senior housing. As estimated by the Social Security Administration, approximately 9,600 people will turn 65 in 2015 on a daily basis, up from 7,800 reported in 2010. Of course, predicting the exact type of living arrangements people want is difficult, especially since people are living longer and have different opinions pertaining to housing options.

Atlanta, Chicago, and Dallas have the most construction underway. Combined, these markets represent over 10% of all existing inventory. Within those markets are a number of large firms. For instance, Health Care REIT has several properties in all three cities. However, even some of the smaller cities in the U.S. are experiencing the same strong growth.

The thought of 10,000 people turning 65 on a daily basis is obviously something developers are thinking about, and with greater demand, builders are considering the type of housing that most of these people want. Some properties will boast a pool, fitness facility, and even a ballroom. Of course, even at 65, a lot of these people are a long way from being ready to live in senior housing.

While finding renters is one problem with increasing supply, another is that property owners may not be in a position to increase rent as quickly as wanted. Even though the overall effects of rising supply can be avoided in some markets, most experts are extremely skeptical that this is something that can be avoided altogether.

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