During the past few years, low interest rates and favorable demographics have helped fuel the construction of senior housing facilities across the country. However, according to a report that was released by the National Investment Center for the Seniors Housing & Care Industry (NIC), the pace of construction starts decreased in the first quarter of 2014 when compared to the first quarter of 2013. While the decrease was slight with current construction as a share of existing inventory falling to 3.1% during the first quarter of 2014, from 3.2% during the first quarter of 2013, it did renew some earlier conversations in the industry about the potential to oversaturate the market with too many senior living communities and whether or not this is beginning to happen.
Fortunately, senior housing owners and operators will be happy to hear that the general consensus among industry professionals is that the market is not oversaturated and instead, it is likely that construction starts fell because of the unusually harsh weather conditions that the country experienced during the winter. According to a broad swath of economists, analysts, and the Federal Reserve, these conditions played a pivotal role in the economy’s slowdown during the first quarter of the year. Indeed, Beth Burnham Mace, the chief economist and director of capital markets for NIC stated as much with her comment that “Construction activity has moderated slightly, which might be weather-related, but there is a lot of capital in the sector, so we’re expecting there will be more product coming into the market as we go forward.” Furthermore, data from the Federal Reserveshowed that construction starts in commercial real estate also slowed down during the first quarter, indicating that the slowdown in senior housing had less to do with the demand for these services and more to do with the weather instead. Lastly, analysts also see a difference among senior housing’s different categories and are especially bullish on growth in the assisted living sector. For example, during the next four quarters, NIC’s analysts expects inventory growth in the assisted living sector to be about 3.4% and the absorption rate to be about 3.9%. If these figures materialize, they will both be greater than they were during the last four quarters when inventory growth increased by 2.3% and the absorption rate increased by 2.8%. These numbers demonstrate that there is ample demand for senior housing services and that industry participants have taken notice of this and are adding inventory in order to meet this demand.
As demand for senior housing services continues to increase and interest rates remain low, industry participants and investors who are seeking capital for growth, acquisitions, or other purposes should continue to look to the Chicago-based financing firm Cambridge Realty Capital for their financing needs.