Market Signals 2013

During the third quarter of 2013, the Orlando metropolitan market registered its strongest quarter in the current market cycle, in terms of demand, with net absorption of 235 units. This helped lift Orlando’s seniors housing occupancy 260 basis points to 90.8%, its highest level yet in the current market cycle.

FIGURE 1

While Orlando’s occupancy continued to climb, its annual asking rent growth continued to slow and turned negative. As of the third quarter of 2013, annual asking rent growth was -2.7%, after having slowed substantially during the past year. A year ago, annual asking rent growth was 4.2% in Orlando. While occupancy performance between independent living and assisted living has been similar of recent, there is a clear divergence in asking rent growth between the property types. As of the third quarter of 2013, although annual asking rent growth in assisted living properties was healthy at 2.2%, across independent living properties rent growth turned sharply negative at -5.3%.

FIGURE 2

Market fundamentals in the Philadelphia metropolitan market continue to be slow to improve, as occupancy has realized only modest recovery since establishing its cyclical low during the first quarter of 2010. As of the third quarter of 2013, Philadelphia’s seniors housing occupancy was 89.5%, which is only 70 basis points above its cyclical low. Despite very little supply pressure, absorption has not been strong enough to lift occupancy far from its cyclical low. Since the first quarter of 2010, annualized inventory growth has averaged only 0.4%, but absorption has also been somewhat anemic averaging 0.6% on an annualized basis during that same time.

 

Tempered inventory growth may be a thing of the past, however, as there are several new seniors housing properties poised to open in the near-term. As of the third quarter of 2013, there were five new properties under construction, all assisted living. Seniors housing overall current construction, including expansions, totaled 748 units, representing 2.2% of existing inventory. As all of the new property construction is in assisted living properties, there is likely to be a divergence between independent living and assisted living occupancies in the near-term, as supply pressure will be quite different between the two property types. Construction in assisted living properties represented 6.2% of the existing inventory, compared to a construction rate of only 0.9% in independent living properties.

 

As of the third quarter of 2013, seniors housing occupancy within the Phoenix metropolitan market was 84.6%, the lowest occupancy rate among the primary markets. Phoenix’s struggles are not isolated to a particular property type, as occupancy in its independent living and assisted living properties were 85.1% and 83.4%, respectively, both ranking second lowest among each respective property type across the primary markets.

 

While there is not additional near-term supply pressure in independent living, Phoenix’s assisted living market is poised for a period of significant inventory growth. As of the third quarter of 2013, Phoenix had 858 units under construction in assisted living properties, representing 14.1% of the existing inventory.

The New York metropolitan market generally has among the higher seniors housing occupancy rates, and this quarter was no exception, as New York ranked third within the 31 largest metropolitan markets (MAP31), behind only Pittsburgh and San Jose. As of the second quarter of 2013, New York’s seniors housing occupancy was 92.4%, down a nominal 10 basis points from a year ago. In the past year, New York’s occupancy has largely oscillated, but remains 180 basis points above its cyclical low.

 

As of the second quarter of 2013, New York’s seniors housing occupancy was 340 basis points higher than the collective occupancy for the MAP31. While MAP31’s seniors housing occupancy is 210 basis points above its respective cyclical low, compared to 180 basis points for New York, MAP31’s declines during the recession were much more severe. New York’s peak-to-trough decline was 220 basis points, compared to a decline of 480 basis points for the MAP31. Seniors housing occupancy in New York is within pre-recession levels, while occupancy in MAP31 remains 270 basis points off its previous market cycle peak.

As of the second quarter of 2013, Minneapolis’s seniors housing occupancy was 91.6%, up 20 basis points from a year ago. The Minneapolis metropolitan market has maintained a high occupancy rate despite recent openings of several new properties. In the past year, six new properties have opened, adding 461 units to Minneapolis’s inventory. In addition, several existing properties underwent expansions, bringing net inventory growth to 703 units, or 3.8%, in the past year.

 

Inventory growth is likely to continue in Minneapolis, as its construction pipeline remains active. As of the second quarter of 2013, there were seven new seniors housing properties under construction in Minneapolis and another six properties undergoing expansions. The new properties will add 757 units to Minneapolis’s inventory, while the expansions account for an additional 200 units. Overall, Minneapolis’s construction activity as of second quarter 2013 represents 5.0% of the market’s existing inventory.

Through the second quarter of 2013, recovery in Miami’s seniors housing market fundamentals has been sluggish, despite minimal pressure from supply. As of the second quarter of 2013, seniors housing occupancy in the Miami metropolitan market was 86.7%, up 100 basis points since establishing its cyclical low during the fourth quarter of 2009. Comparatively, occupancy in the 31 largest metropolitan markets (MAP31) was 210 basis points above its cyclical low as of the second quarter of 2013.

Miami has experienced a slight upswing in absorption recently, but has suffered from anemic demand for many years. During the past seven years, Miami has lost a net total of 516 occupied units, which translates to average annual absorption of -0.4%. Los Angeles was the only other market in the MAP31 with net loss of occupied units during that time.

During the same period, there has been very little pressure from new supply, as Miami’s inventory has only increased by 274 units during the past seven years, translating to annualized growth of only 0.2%. In the near-term, it is likely that inventory growth will continue to remain muted, as there was nothing under construction during the second quarter of 2013.

To learn more about Miami, or another market of interest, please visit NIC MAP.

Los Angeles’s seniors housing occupancy continued to slowly improve, as inventory growth remained tempered. As of the first quarter of 2013, seniors housing occupancy in the Los Angeles metropolitan market was 88.1%, which was up 50 basis points from the prior quarter and up 170 basis points from a year earlier.

While Los Angeles’s independent living occupancy has been recovering but only moderately. As of the first quarter, occupancy across Los Angeles’s independent living properties was 88.2%, which was up 10 basis points from the prior quarter and up 80 basis points from a year ago. Los Angeles’s independent living occupancy is now 140 basis points above the cyclical low it establishing during the third quarter of 2010. Since the third quarter of 2010, inventory has actually contracted at an average annual pace of -0.6%, compared to essentially no net growth for absorption. Inventory should begin to expand modestly in the near-term, as construction represented 2.2% of existing inventory as of the first quarter of 2013.

While Los Angeles’s independent living occupancy is still above that of assisted living, the spread has been tightening as depicted in Figure 2. While both markets have had their inventories contract, absorption in assisted living has outpaced that in independent living. Over the past four quarters, the number of occupied units in assisted living has increased by 3.3%, compared to an increase of only 0.7% in independent living.

As of the first quarter of 2013, occupancy in Los Angeles’s assisted living properties was 87.9%, which was up 60 basis points from the prior quarter and up 240 basis points from a year ago. Inventory growth is unlikely to hinder further occupancy gains across assisted living properties, as construction represented only 1.2% of existing inventory as of the first quarter of 2013.

To learn more about Los Angeles, or another market of interest, please visit NIC MAP.

Kansas City’s seniors housing market fundamentals have steadily improved since bottoming during the fourth quarter of 2008, with its occupancy rising 740 basis points since that point. As of the first quarter of 2013, the seniors housing occupancy within the Kansas City metropolitan market was 90.6%, which was up 40 basis points from the prior quarter and up 50 basis points from a year ago.

Kansas City’s recovery during the past three years has been driven by independent living properties. Since establishing its cyclical low during the fourth quarter of 2008, Kansas City’s independent living occupancy has risen by 840 basis points. The recovery in Kansas City’s independent living occupancy is the result of tempered inventory growth combined with robust absorption. Since the fourth quarter of 2008, inventory has grown at an average annual pace of only 0.4%, compared to a 2.7% average annual rate for absorption. As of the first quarter of 2013, Kansas City’s independent living occupancy was 91.2%, which was up 60 basis points from the prior quarter and up 100 basis points from a year ago.

While Kansas City’s independent living inventory growth has been tempered recently, its growing construction pipeline implies growth will soon accelerate. As of the first quarter of 2013, Kansas City had 416 units under construction in independent living properties, which represented 4.8% of existing inventory. There were two new properties under construction, including the 106-unit Covenant Place of Lenexa and the 143-unit McCrite Plaza Senior Living at Briarcliff, which were scheduled to open in May and October, respectively as of the first quarter of 2013. Tallgrass Creek and Wexford Place were also adding units, although all of these units are in higher acuity services.

The occupancy for Kansas City’s assisted living properties has oscillated between 88% and 90% since the second quarter of 2010. As of the first quarter of 2013, Kansas City’s assisted living occupancy was 89.1%, which was down 10 basis points from the prior quarter and down 90 basis points from a year ago. While absorption has been strong, growing at a 5.2% average annual rate since the second quarter of 2010, it has only been able to merely offset inventory growth, which has grown at a 5.3% average annual rate during the same period. Near term inventory pressures should relent, as there was no reported construction activity during the first quarter of 2013.

While there was a 210 basis point spread between Kansas City’s independent living and assisted living occupancy rates as of the first quarter of 2013, most of the spread was due to unstabilized assisted living properties that were skewing the average. As depicted in Figure 4, Kansas City’s assisted living properties actually had a tighter stabilized occupancy distribution than its independent living properties. Furthermore, the median occupancy of stabilized properties in Kansas City’s independent living and assisted living properties was 93.6% and 95.0%, respectively, as of the first quarter of 2013.

To learn more about Kansas City, or another market of interest, please visit NIC MAP.

Construction activity across assisted living properties within the MAP31 markets has been steadily increasing during recent quarters and currently represents 3.8% of existing inventory. In the Houston metropolitan market, assisted living construction has been surging. As of the first quarter of 2013, Houston’s assisted living construction represented 16.9% of its existing inventory, nearly 600 basis points higher than that of any other MAP31 market. There are eight new assisted living properties scheduled to open this year in Houston.

The pending wave of inventory growth comes as recent new developments have already begun to impact occupancy. During the first quarter of 2013, Houston’s assisted living occupancy declined 470 basis points, as inventory grew by 285 units, or 6% of existing inventory. Based on current construction activity, Houston’s assisted living market is poised to grow by an additional 17% in the near future, which will likely continue to place downward pressure on occupancy.

A large portion of Houston’s current assisted living construction is related to memory care. As of the first quarter of 2013, memory care accounted for 394 of the 893 units under construction within assisted living properties, with an additional 66 memory units under construction within other property types. The memory care construction activity represented 26% of Houston’s existing memory care inventory. As of the first quarter of 2013, memory care occupancy in Houston was only 79.1%, which ranks Houston only slightly higher than that of Kansas City at 30th among the MAP31 markets.

To learn more about Houston, or another market of interest, please visit NIC MAP.