When observing the latest trends in senior
living, don’t jump to any conclusions - make sure you’ve got the whole picture
first. CRE’s senior living sector is facing low occupancy rates - but that
doesn’t mean the industry isn’t standing strong.
When it comes to NOI, occupancy isn’t
everything. While a property’s occupancy rates can act as the main contributor
to net operating income, there are other elements that help fuel profits for commercial real estate investors.
So what’s going on in the senior living spaces
that are sparking turbulence for commercial real estate? Here’s a breakdown:
Construction
is Booming
For the last few years, senior living spaces
have been undergoing a surge of construction. Unfortunately, this elongated
period of growth has taken a major hit on occupancy rates. In the five years
between 2014 and 2019, national occupancy rates for senior living facilities
have dropped 2.5%.
As reported by the National Investment Center
for Senior Housing and Care, the industry made a quick turnaround last quarter
as the occupancy rates were boosted by 0.3%, bringing the national rate to 88%.
This fluctuation has made many people skeptical of senior living projects and
how well they will do moving forward.
Beware
of Oversupply
While new developments are in the making,
oversupply is already a problem facing senior living CRE. Big markets around
the country are over saturated with senior living facilities, and in result,
occupancy rates continue to take a hit.
Data
Rates Aren’t Steady
Competition is hot - making it hard to
pinpoint the health of the senior living business. While some developers are
struggling, others are going strong. Occupancy rates and profit margins vary
from project to project - sometimes dramatically. To say that the industry
isn’t doing well would be ignoring the players who are dominating the game.
The industry is seeing conflicting data. While
occupancy rates are on the decline, a recent study from the 2019 Senior Housing
Report states that 40% of respondents noted an increased NOI. Times are
certainly tough for senior living, but those who are ready to bring the heat
are finding success even in the face of adversity.
How are
Providers Protecting their NOI?
These 2 strategies are helping senior living
providers keep their NOI rates high.
1. Give
Old Buildings TLC
With oversupply threatening metros around the
country, it’s the older buildings who are taking the hit. Older properties
aren’t able to keep up with the competitive advantages that new developments
have to offer. To keep your portfolio current, give your older properties some
upgrades. A great place to start is by embedding technology into the building.
2.
Focus on Economic Occupancy
Occupancy is all about boosting profits, but
rental rates can differ from unit to unit. In order to determine senior facilities’
true outlook, use the metric of economic occupancy.
Economic occupancy is derived by looking at
how much rent profits a building is currently generating versus the amount it
would produce at full occupancy. This helps providers gauge their position in a
time when low occupancy is rampant.
Comments
Post a Comment