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Senior Housing Boom Predicted by Developers


According to experts, the largest cohort for the U.S. rental housing demand has to do with the thousands upon thousands of baby boomers who are now reaching retirement age. For that reason, developers strongly believe that senior housing is the next big opportunity.

Growing Demand

In response to growing demand, seniors housing is now seeing the most construction in the past six years, according to the National Investment Center for Senior Housing and Care (NIC). In NIC’s latest report, inventory for seniors housing is greater than supply due to concerns of oversupply throughout the industry, this for the second quarter in a row for 2015.

With accelerated supply, occupancy rate for seniors housing properties dropped 20 basis points to 89.9 percent, indicating the pace of demand does not match new supply. In Riverside, California, and San Antonio, Texas, absorbing new product is a much greater concern, whereas in Minneapolis, Minnesota, and Phoenix, Arizona, gains in occupancy have been achieved in spite of heavy deliveries.

For new supply, the annual growth rate climbed to 1.9 percent of total seniors housing inventory, up from 1.7 percent from the prior quarter. As far as projects under construction, existing inventory dropped just 0.2 percentage points to 4.2 percent.

In the second quarter of 2015, the 3,600-plus units completed represent the highest number of seniors housing units since 2009. With sustained rates of inventory growth predicted over the next 12 months, there needs to be an increase in the pace of absorption. With that, the market can experience a noted upward swing on occupancy rate.

Increased Baby Boomer Need

Even though supply numbers are stark, multifamily housing will continue to be in demand for the baby boom generation. Ethan Valsman, real estate economist with CoStar, stated that from now until the end of 2019, the number of people 65 years and older will increase by more than 8 million compared to just a 1.5 million growth of people between the ages of 20 and 34.

As adult children move out and more baby boomers choose to downsize, more people from this generation will enter the rent market. Renting is less complicated, and it provides baby boomers protection from ongoing rent appreciation. Going forward, baby boomers will have a greater role in the renter population.

For large publicly traded REITs in the senior housing sector, development and acquisition activity will offer a window into the supply and demand issue. A prime example is New Senior Investment Group, which went public this past March.

This particular organization is said to be the first and only pure-pay seniors housing REIT without actually being in the development business. Independent living properties are being built, a sub-sector in which new supply is not as fast as seen with other senior housing options. Overall, many developers see the opportunities that senior housing offers and are making necessary changes to tap into that market.

Gaining More Insight

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