CCRC/LPC Market Trends: 3Q2017
As the seniors housing and care industry’s leading data provider, NIC tracks occupancy, rental rates, supply and construction data for independent living, assisted living, memory care, skilled nursing and continuing care retirement communities (CCRCs)/life plan communities (LPCs). Through the NIC MAP® client portal, subscribers have access to robust web-based tools and reports, including market-level summaries and historical time-series data for seniors housing supply and demand market fundamentals that can be accessed by filtering different data aggregations.
The following narrative shines a spotlight on CCRC/LPC occupancy trends in the combined primary and secondary markets, which represent the aggregate of the data collected from 99 of the largest core-based statistical areas (CBSAs).
All the data reviewed herein was downloaded directly from the “Trends” tool on the NIC MAP® client portal, selected by “Community Type,” which is a new categorization whereby each community is classified by its plurality care segment (IL, AL, MC, or CCRC/LPC). The CCRC/LPC selection by “Community Type” provides data that are mutually exclusive, allowing the analyst a quick and easy method for viewing CCRCs/LPCs separately and apart from other community types that NIC reports.
Supply & Demand Fundamentals
CCRC/LPC occupancy is generally up despite a slight third quarter decline
A review of the current third quarter 2017 data for the combined primary and secondary metropolitan markets tracked by NIC MAP® shows that CCRC/LPC occupancy has trended generally upward since the cyclical low reached in the second quarter of 2013 (89.5%), and is currently 20 basis points below its recent high of 91.2%, which was reached in the second quarter of 2017.
The recent dip in occupancy may be attributed to third quarter inventory growth of 1,559 CCRC units (shown by the red bar) exceeding net absorption of 614 units (shown by the blue bar). Since the second half of 2013, net absorption has largely exceeded or kept pace with inventory growth.
Occupancy by Profit Status
Not-for-profit CCRCs/LPCs lead in occupancy
Not-for-profit occupancy is currently 4.9 percentage points higher than for-profit CCRCs/LPCs (92.3% vs. 87.4%).
The occupancy spread for not-for-profit and for-profit CCRCs/LPCs in the combined primary and secondary markets has oscillated between 2.9 percentage points and 5.4 percentage points since NIC began reporting the data in 2008.
Occupancy by Market Cohort
Primary and secondary market occupancy rates continue to track closely
As of the third quarter of 2017, CCRC/LPC occupancy was 91.5% for the secondary markets and 90.7% for the primary markets.
CCRC/LPC occupancy in the primary and secondary markets has been tracking relatively closely since the first quarter of 2015, with the narrowest spreads observed in the first quarter of 2015 and 2016, and the second quarter of 2017.
Looking at the historical time-series data, occupancy in the primary markets shows a steeper decline than in the secondary markets during the economic downturn. Between the first quarter of 2008 and the fourth quarter of 2010, occupancy fluctuated by 3.4 percentage points in the primary markets and 1.6 percentage points in the secondary markets.
CCRC/LPC Supply & Demand by Payment Type
Entrance fee and rental occupancy gap is near recent record high
The spread between entrance fee and rental CCRC/LPC occupancy in the combined primary and secondary markets has been growing since the fourth quarter of 2013, with the widest differentials reached in the last two quarters of 2016 (3.0% and 2.9%) and the third quarter of 2017 (2.8%).
While entrance fee CCRC/LPC occupancy has oscillated around 92% for the past eight quarters, rental CCRC/LPC occupancy began trending downward in the second quarter of 2015 (but saw a slight increase at the end of 2016).
As of the third quarter of 2017, entrance fee CCRC/LPC occupancy was 92.0% and rental CCRC/LPC occupancy was 89.2%. The current occupancy rate for entrance fee CCRCs/LPCs is 10 basis points below the prior quarter’s rate of 92.1% when it reached its highest point since the third quarter of 2008.
Entrance fee and rental annual inventory growth and absorption are cyclical
Seniors housing, like all commercial real estate has cycles—periods where there is significant development and others when there is little. Although entrance fee CCRCs/LPCs reported an uptick in annual inventory growth beginning in the third quarter of 2016, rental CCRCs/LPCs trended downward, reporting negative figures following two quarters of peak or near peak annual inventory growth. Negative growth is often a result of units being taken off line, and may reflect units being combined into larger residences or shifted to assisted living.
Since the first quarter of 2009, entrance fee CCRCs/LPCs have maintained positive annual absorption, while rental CCRCs/LPCs have experienced more volatility, with only two recent quarters registering positive annual absorption since the second quarter of 2015.
In summary, as of the third quarter of 2017, CCRC/LPC occupancy is trending upward since the cyclical low reached in the second quarter of 2013, but the data provide additional detail depending on how you slice it:
- Not-for-profit CCRCs/LPCs lead for-profits in occupancy, and the difference between the two is near recent high
- Primary and secondary market occupancies recovered at different rates after the economic downturn but now continue to track closely
- The occupancy gap between entrance fee and rental CCRCs/LPCs is near its widest level recorded, and rental occupancy is trending downward
- Entrance fee CCRCs/LPCs reported an uptick in annual inventory growth beginning in the third quarter of 2016, and continue to maintain positive annual absorption
- Rental CCRCs/LPCs register negative inventory growth following two quarters of peak or near peak levels and only two quarters with positive annual absorption since the second quarter of 2015
Indeed, the “Trends Tool” in NIC MAP® can be used to gain great insight into market trends specific to CCRCs/LPCs. Future blog posts leading up to the NIC MAP® 4Q2017 data release will delve into occupancy, supply and demand data for stand-alone memory care communities.