Thank you to Lois A. Bowers from McKnight’s Senior Living, Editor’s Column for this article
“Cautiously optimistic” is the way Lisa McCracken, head of research and analytics at the National Investment Center for Seniors Housing & Care, described NIC’s outlook for senior living and skilled nursing providers Wednesday during a briefing with members of the media as the organization’s Spring Conference got underway in San Diego.
“We definitely feel like we are in a better spot than we were one year ago and in 2023,” she said.
McCracken shared eight themes shaping the senior housing and care marketplace, in NIC’s view. “This is … how we see the space unfolding over the next several years” and “some of the tailwinds and headwinds associated with each of these,” she said.
The themes:
- Escalating demand driven by the demographic growth of the 75-plus population. For years, the industry has been preparing for the arrival of the “silver wave” of baby boomers. Now, with the oldest boomers turning 79 this year (the youngest are turning 61), “the boomers are here,” McCracken said. “They are, in many respects, a number of our customers and individuals accessing the housing and care and supportive services that we need.”
- Decreasing supply growth rate. Although it is widely known that new additions to inventory have been minimal, McCracken said, “What’s interesting is, we did not predict that we would be in this spot of the demographic wave coupled by an environment where our ability to grow is really stymied by the economic environment.” Providers are still feeling some effects from the pandemic, “and we anticipate some of that’s still going to be with us for a period of time,” she said. “So while it’s exciting in terms of the limited new construction really pushing occupancy levels and fueling some of that demand as well, it’s a bit of a less-desirable imbalance in terms of what we’re able to deliver as a sector.” Providers, McCracken added, “need to find a path forward despite some of these headwinds that are holding back some of the development, to grow the sector and find new ways to meet the needs and preferences of the aging population.”
- Improving operating fundamentals. “With the supply/demand imbalance, the operating performance is showing strong positive momentum,” McCracken said, noting that the industry “has become a hotspot in the larger commercial real estate ecosystem.”
- Increasing investor interest. Indeed, she said, “We definitely are being observed by some groups that didn’t pay attention as much in the past.” McCracken shared the results of an Urban Land Institute poll conducted last fall that found that senior housing was the second most popular commercial real estate property type that investors were bullish on for the next few years, after data centers. “So we know that we’re going to continue to have the commitment of the traditional historic investors in our space and the capital partners, but we also feel that there is an opportunity to grow the new capital and investor platform coming into our space,” she said. Interest from new places was evident in NIC Spring Conference registrations, McCracken said, noting that 470 of the 2,060 registrants as of the meeting’s first day were first-timers.
- Stabilizing capital markets. “Here’s things that we hear at NIC often: There’s plenty of private capital out there to invest, 2025 is going to be a very strong year for transactions, new capital is coming into our space, and bank lending is improving,” McCracken said. “We are a growing and maturing sector, and we will need to attract the new capital sources along with the traditional capital partners.” Funding is needed for both bricks-and-mortar properties as well as for investments in things such as technology and workforce solutions, she said, noting that those investment types usually involve different capital partners. Meanwhile, McCracken said, operators collectively have more than $10 billion in loans maturing in 2025. “The Fed rate reductions in the second half of 2024 have helped in that regard, but we still have maturing loans that are coming into a different environment than what we had upon their origination,” she said. Inflationary impacts to the US economy may ripple through the sector as well, McCracken added. “It’s going to necessitate that we do more with less, and there is a key role for technology in that space,” she said.
- Shrinking workforce. The aging of baby boomers may be good for senior living occupancy, but not so much the senior living workforce. “A lot of those boomers are exiting the workforce, or at least from full-time jobs and commitments,” McCracken said. Fifteen years ago, the caregiver ratio was 7:1, but by 2023, it is expected to be 4:1, she said. Additionally, McCracken said, one-fourth of the long-term care workforce is immigrants. “Our workforce is shrinking, and we need to find innovative ways to be smarter and more efficient,” she said, adding that technology can help. “The good news is … we are on the radar to a greater extent than in the past, and I think what comes with that is increasing investor interest, potentially around some of the capital needs for some of these innovative models and technologies.”
- Changing customer preferences. “If our playbook is the amenities race, we’re not going to win long-term,” McCracken said. “Our value proposition really needs to shift in the decades ahead.” With an increasing number of residents living more than 100 years, she added, “we’ve got to think about, for the communities that we operate, how can we be in a position to support those years lived in a healthier way and not just advancing the lifespan?” Additionally, McCracken said, senior living is “perfectly positioned” to address isolation and loneliness in older adults, which Biden Surgeon General Vivek H. Murthy, MD, MBA, labeled as a public health crisis in 2023. Wellness efforts related to social isolation, engagement and health outcomes to reduce hospitalizations and acute episodes “need to be at the center of our operational models,” she said. “I think it has been very clear that we are not just housing; we are care. And that’s regardless of whether we’re talking about independent living [or] assisted living. Our models need to adjust accordingly.”
- Declining affordability. Affordability is lessening as operator expenses increase, resulting in continual rate increases, McCracken said. “We know, and the data shows, that there are a significant number of boomers and seniors that have the ability to pay for private-pay senior housing that will have the ability to absorb rate increases and the pass-through of operating expense increases onto the resident, and that is assuring,” she said. Although incremental progress has been made on developing solutions for middle-income older adults, McCracken added, when it comes to larger-scale solutions, “we’re not there yet,” especially when it comes to meeting older adults’ care and supportive services needs. “It gets incredibly expensive really quickly,” she said, adding that “in some consumer circles, we’re seen as being out of touch with the everyday older adult.” Public-private partnerships may be needed to solve the affordability issue, she said. “If it’s not going to be us figuring this out, who will?”
In Conclusion
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