New Senior Living Construction Starts Likely to Bottom Out in 2024
The number of new senior living community construction starts is likely to reach a low point in 2024 not seen since the start of the Covid-19 pandemic.
According to a Dec. 21 analysis from NIC, “mid- or late-2024 [is] the most likely period for senior housing construction starts to reach their lowest point.”
Additionally, the median duration of construction has been increasing in recent years, with an average of 24 months in 2023.
If the Fed lowers interest rates in 2024, that could could bring “tabled projects” back into active planning, according to NIC Head of Research and Analytics Lisa McCracken.
“The NIC analysis shows that we are in the 24-25 month construction cycle on average,” McCracken told Senior Housing News “That means that for the average senior housing project, any new projects initiated in 2024 will not likely come onto the market until 2026.”
The elongated construction cycle coupled with difficulty getting projects started has led to other forms of strategic growth for senior housing companies, such as through acquisitions.
“This latest information, coupled with projected declines in the cost of capital over the next two years, is going to put senior housing and care owners and operators in a position to be more actively planning for what lies ahead,” McCracken said.
The report’s author, NIC Principal Omar Zahraoui, wrote the current units under construction this year reached the lowest number seen since 2014, following a downward trend that began in 2019 which ended four years of “consistent positive growth.”
During the timeframe of 2015-2019, however, there was a decelerated pace of new construction, which Zahraoui wrote suggested units being completed and delivered.
Following a slight stabilization in 2021 at a 4% decrease, up from 13% decrease in 2020, the number of new construction starts has only continued to decrease, with 2023 showing a 15% decrease. These decreases are largely attributed to the current lending environment, high interest rates, inflation and capital market conditions.
New construction is less feasible due to this fact, according to Zahraoui.
“This trend indicates a typical cycle in housing markets in general, where a construction boom is often followed by a phase of heightened deliveries, as depicted by the deceleration in the pace of units under construction,” Zahraoui wrote.
The trend data reflects the overall sensitivity of the senior housing market and acts as “indicators of different phases” within the senior housing cycle. Periods of positive new starts indicate stabilization, Zahraoui wrote.
He added that polls conducted during quarterly webinars revealed 40% of respondents anticipate new construction starts will begin to bottom out in the first half of 2024. However, an increasing number, 20% as of 3Q23, believe it will happen beyond 2024.
“This shift suggests a trend of diminishing confidence in a quick construction market correction amid challenging capital market conditions and lending environment,” Zahraoui wrote.
However, an upside of the decreasing number of starts has been the increased recovery of occupancy, which is nearing pre-pandemic levels.
Regional data indicates unique “challenges and opportunities” for development are present for each region, though the Pacific region represents 19% of the current construction in NIC MAP’s primary and secondary markets. However, it’s still trailing behind other regions as of 3Q23 in terms of recovery.
Looking ahead, McCracken noted there is no way to know if the lengthened construction cycles are here to stay or if they can decrease back to the shorter cycles seen in 2015 and 2016.
“What we want to avoid is continued lengthening of the construction cycle. We are optimistic that through disciplined execution that we can avoid that scenario,” she said.
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