According to information released at the National Investment Center for Seniors Housing & Care Industry’s (NIC) annual conference in Chicago last week, assisted living development is currently concentrated in a few specific metro areas. Approximately 70 percent of new development is taking place in just ten metro markets across the country as senior housing developers continue to take advantage of low interest rates to lower their construction costs. Before the Federal Reserve raises interest rates and development costs increase, senior housing providers and other industry participants should contact Cambridge Realty Capital to learn more about the different financing options it offers for various senior housing transactions.

Oversaturation Fears Begin to Recede

Earlier in the year, there were concerns raised by some in the senior housing industry that too many assisted living facilities were being built, and that this would lead to lower occupancy rates and profits in the sector. However, according to the NIC, this did not occur, and instead assisted living development is beginning to level off, calming fears of oversaturation. Nonetheless, growth in assisted living remains concentrated, with roughly 70 percent of new construction taking place in just ten markets, and a significant piece of that taking place in the Houston and New York areas alone.

Fortunately for investors, high concentration is not necessarily a cause for concern. According to a presentation given at the NIC conference, in the top 31 assisted living markets, high penetration did not necessarily lead to lower occupancy. In fact, a number of markets with high penetration rates also experienced high occupancy rates. This was partially due to community attitudes toward long-term care in some of these high penetration areas. For example, it is common for residents in Quaker communities in Pennsylvania to immediately transition into senior housing as soon as they reach a certain age. This is not the case in other parts of the country, where the transition depends on a number of factors such as finances, where the adult children live, and the wishes of the adult children.

Labor Markets Continue to Impact Development

Development in the ten areas where it is happening most is partially due to demand for assisted living services, but it is also due to attractive labor markets in those areas. Because assisted living facilities need skilled labor in order to operate efficiently, developers often look to build in areas with a strong pool of potential employees to choose from. This is one reason why New York and Houston are seeing a lot of development. Both areas have large populations with many skilled professionals that can contribute to the growth and success of long-term care facilities built there.

As the nation’s population continues to age, and the demand for senior housing increases, additional assisted living properties will continue being built across the country. Time will tell if development continues to stay concentrated in a few areas, but even if this trend does continue, it does not appear as something investors should worry about, since properties in highly concentrated areas often maintain higher occupancy rates than properties in less dense areas. Investors seeking capital to purchase some of these properties should continue to look to Cambridge Realty Capital for assistance in funding these transactions.

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