4 months ago
4 months ago
It is no secret that the U.S. population is aging. From 2010 to 2015, the US population grew 3.9%, but the population of those over 60 grew 16.7%.
This means that the under 60-year-old segment grew only 1.0%. Put in different terms, the percent of the U.S. population at or above 60 years old went from 18.6% to 20.9% in just five years.
Many senior citizens are moving into seniors housing either because they want to or because they can no longer live on their own. Indeed the options for all four categories of senior housing — independent living, assisted living, skilled nursing and memory care — have grown significantly over the last five years as more baby boomers move into their elder years. As a result, this industry has grown into its own veritable commercial real estate property category garnering significant interest from developers, operators and investors.
But because of its specialized nature, many traditional real estate investors have had a difficult time understanding what to look for in this industry. While rent growth has been robust in a number of markets given the growth in demand, rent growth rates have varied widely across the nation. Markets that have seen the fastest growth are not necessarily the same ones that have seen strong growth in more traditional property types such as multifamily and office. This is due to a number of factors — demographics, one would expect — being the biggest. That is, seniors housing is more prominent in markets with an aging population such as Florida and the South in general. This presumption is true to some extent, but the data shows that the connection is not so direct.
While a number of Southern metros have seen the strongest rent growth, others have seen little to no growth in rent. Thus, it’s a worthwhile exercise to see how rent growth has compared not only to the percent of the population over the age of 60 — but also by the growth in the population of people over 60.
In fact, the numbers show that rent growth is positively correlated with the growth in population in those over 60. In addition, rent growth in some categories shows an even higher correlation coefficient with growth in the overall population. However, there is consistently no correlation between rent growth and the ratio of people over 60 to total population. This means that Southern markets that many might associate with an older population did not necessarily see the sharpest growth.
The independent living segment of seniors housing has the highest correlation with both the growth in population over 60 and growth in overall population. This is probably due to the nature of this category in that those who choose to live in independent living quarters probably due so for the number of amenities it offers. These are not the seniors who need extra help. While rents in independent living quarters are significantly lower than the other categories, rent growth for this subcategory was higher than for the other categories from 2015 to 2017.
Still, if rent growth is not driven so much by the ratio of seniors to total population, it is interesting to see how rents varied depending on the growth in this segment of the population. The charts below show the Top 12 and Bottom 12 metros with respect to the growth in the seniors segment of the population and the rent growth rate in the independent living subcategory.
Note how most of these metros are in the South and are recognized more for their population growth than for their growth in those over 60. Take Austin, for example. Its population has exploded over the last few years, but few would guess that the biggest part of that growth is in its seniors – the rest of the population only grew by only 13% from 2010 to 2015.
Note how most of these metros are in the Midwest or Northeast and are recognized more for their low population and economic growth — although Washington, DC is an interesting outlier on this list. What is interesting about this list of lowest growth metros is that the rent growth for the last two years in independent living was in line with rates from the fastest growing list for most metros. In other words, the demand for senior housing is pretty widespread and not necessarily driven by the growth in the senior population.
In sum, it pays to understand how differently this asset class has performed across the U.S. Many metros such as New Haven and Westchester County have not seen strong population growth in its seniors demographic, yet they have nevertheless posted average rent growth rates for independent living facilities that are in line with the U.S. average. On the other hand, metros that have had a rapidly growing senior population such as Boise, Idaho and Houston, Texas have seen slower rent growth rates over the last two years. Thus, there are other factors driving rent growth in seniors housing and it pays to do the research to determine what those factors are.
About the Author
Barbara Byrne Denham is a Senior Economist in the research and economics department at Reis, the team responsible for the firm’s market forecasting, valuation, and portfolio analytics services.
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