In response to projections showing increased demand for their services, senior housing providers have increased the construction of new facilities in order to satisfy this demand. Now some industry analysts are concerned that providers might be boosting construction too much and will eventually oversaturate the market. However, many industry professionals hold the opposite view and are continuing to ramp up construction.
Over the next 35 years the population of senior citizens is expected to double and senior housing providers have adjusted their behavior accordingly by ramping up construction. However, according to an article in Bloomberg Business Week, this could lead to a glut of supply in the market that eventually overtakes demand. This has analysts at the research company Green Street Advisors Inc. projecting a cut in the growth of senior-housing net operating income from 3.3% this year, to 1.8% in 2015, and 1.4% in 2016. The supply of senior housing units in the nation’s largest 31 markets did increase by 1.4% from the first quarter of 2013 to the first quarter of this year, and now stands at 526,144. Furthermore, according to the National Investment Center for the Seniors Housing & Care Industry (NIC), an additional 16,181 units are currently under construction. These numbers show that senior housing providers are moving quickly to address the projected increase in demand for their services as more than 10,000 baby boomers retire each day and the nation’s population gets older.
While senior living providers readily admit that an oversaturated market is not in their best interest, leading providers who have commented on this subject don’t believe that the market is at that point yet. For example, while acknowledging increased construction in the industry, Brookdale Senior Living’s CEO, T. Andrew Smith has also stated that “You have to go down and look at what’s happening in each local market. We just don’t see that much. It’s not to say that there is none, but we don’t see that much truly, directly, adversely new competition.” Similarly, Debra Cafaro, the Chairman and CEO of the real estate investment trust Ventas Inc. apparently shares Mr. Smith’s opinion that the market isn’t oversaturated as evidenced by her recent statement that “Demand is inexorably increasing. From a long-term standpoint, it’s a great asset class because the demand is there.” Lastly, Ian Goltra, a portfolio manager at the investment firm Forward Management, expressed a similar opinion when he acknowledged that although the supply issue is something to keep an eye on, “this demographic wave is real.” These views are supported by statistics published by NIC which reveal that although the supply of senior housing units is at its highest since the fourth quarter of 2005, demand has kept up with it as evidenced by occupancy increasing to 89.8% during the first quarter of 2014, which is the highest it has been since 2008. Moreover, rents also increased to $3,415 per unit during the year’s first quarter. This represents an increase of 2% from the same period last year and is the highest it has been since 2005. These statistics show that while the supply of senior housing units is genuinely increasing, demand for these units is increasing at an even faster clip, quelling worries in the industry that the market might be oversaturated.
It’s uncertain for how long demand will continue to outstrip supply and senior housing providers will certainly adjust their construction plans if and when demand for their services starts to decrease. For now, they are continuing to ramp up construction to satisfy the increasing demand that the nation’s demographic shift has created. As this trend continues, senior housing providers who are interested in obtaining financing to expand or for other reasons should contact the Chicago-based firm Cambridge Realty Capital to learn more about the many differentfinancing programs that it offers.