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Key Takeaways from the Lone Star State’s Seniors Housing Market

Texas is no stranger to seniors housing. Of the 140 markets tracked by the NIC MAP® Data Service (NIC MAP), 6 are in Texas: Austin, Dallas/Fort Worth, El Paso, Houston, McAllen, and San Antonio. Two of those are among the largest metro areas in the nation.

In this blog post, I give you an analysis of Texas’ seniors housing market and several key takeaways about its performance.

Takeaway #1: Population and Job Growth

Texas’ population is on the rise, and the state’s larger metropolitan areas are “growth markets.” Pure growth (both population and employment) in addition to pro-growth attitudes and regulations, land availability, and relatively affordable costs of living and doing business have stoked development in many of the urban areas of Texas.

Dallas/Fort Worth and Houston rank as the fourth and fifth of the 33 largest metropolitan areas (CBSAs) in the nation, respectively, with total estimated populations of 7.1 million and 6.7 million people as of 2015. In terms of population growth, four of the fastest growing metropolitan areas in the nation between 2010 and 2015 were in Texas: Austin (16.6%), Houston (12.4%), San Antonio (11.3%), and Dallas/Fort Worth (10.5%).

Takeaway #2: Inventory Growth

While the four largest Texas metropolitan markets represent only 7.1% of the largest 99 metropolitan markets’ seniors housing inventory, these four markets represented 14.8% of all inventory growth between the end of 2012 and the end of 2016—twice their inventory share. At the same time, Texas’ metropolitan markets also absorbed more than their share of overall net demand, grabbing a lesser, yet still impressive, 11.6% of the largest 99 market’s net absorption since late 2012. The ratio of absorption relative to inventory growth does vary between the Texas markets, as the following table shows.

 

Takeaway #3: Occupancy is Decreasing

As a result of supply outpacing demand, occupancy rates have decreased in Texas since late 2012. Among the larger four metropolitan markets, the most dramatic drop has occurred in San Antonio, which had an occupancy rate of 88.9% in the first quarter of 2013 but fell to 82.2% by the fourth quarter of 2016. Austin saw its occupancy rate drop by 680 basis points over this same period. By contrast, the primary and secondary markets aggregate increased 10 basis points over this same period.

Takeaway #4: Construction Activity in Texas

Looking ahead, there are roughly currently 49,000 units of seniors housing under construction within the 99 markets, representing 5.6% of today’s existing inventory. This is down slightly from 6.3% in the second quarter of 2016 and reflects the slowdown recently seen in the number of units breaking ground, as measured by starts.

Of the current units under construction, roughly 6,100, or 12%, are in Texas’ six metropolitan markets, which is well above its 7.3% share of the overall 99 markets. In terms of absolute units under construction, Dallas ranks highest with 1,930 units, followed by Houston with 1,800 units. By units under construction as a share of inventory, Austin ranks highest with 18% of its current inventory under construction—nearly 1,300 units situated within 12 properties.

Going Forward

Texas’ strong construction rates and generally low unemployment might make finding, building, and maintaining a workforce challenging. NIC’s data on current construction activity in Texas’ major metropolitan areas suggest that competitive pressures for many of the state’s seniors housing operators will likely continue to mount. In this environment, it will be critical to have thoughtful strategies about how to maintain market share and competitive position and to make realistic assumptions regarding leasing activity, rent growth potential, operations, staffing, and marketing.


About the Author

Beth Burnham Mace

Beth Burnham Mace is the Chief Economist and Director of Outreach at the National Investment Center for Seniors Housing & Care (NIC). Prior to joining the staff at NIC, she served as a member of the NIC Board of Directors for seven years and chaired NIC’s Research Committee. Ms. Mace was also a Director at AEW Capital Management and worked in the AEW Research Group for 17 years. Prior to joining AEW in 1997, Ms. Mace spent ten years at Standard & Poor’s DRI/McGraw-Hill as the Director of the Regional Information Service. She also worked as a Regional Economist at Crocker Bank, the National Commission on Air Quality, the Brookings Institution and Boston Edison.

Ms. Mace is a member of the National Association of Business Economists (NABE), the Urban Land Institute (ULI), ULI’s Senior Housing Council and New England Women in Real Estate (NEWIRE/CREW). In 2014, she was appointed a fellow at the Homer Hoyt Institute and was awarded the title of a “Woman of Influence” in commercial real estate by Real Estate Forum Magazine and Globe Street. Ms. Mace is a graduate of Mount Holyoke College (B.A.) and the University of California (M.S.). She has also earned The Certified Business Economist™ title (CBE) from the National Association of Business Economists (NABE). Ms. Mace is often cited in the Wall Street Journal, the New York Times, Seniors Housing Business, Seniors Housing News and McKnight’s Senior Living and has a bi-monthly column in the National Real Estate Investor.
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