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When it comes to building rental apartments, it’s not easy keeping up with 75-year-olds

July 24, 2017 | By

It’s easier to find seniors multifamily rental housing these days. That’s because there’s more of it.

A steady increase in residents who are 75 and older is responsible for the upsurge. The U.S. Census Bureau expects this segment of the population to double over the next 20 years. They will grow from 21 million today to more than 43 million in 2037.

That is the likely explanation for the increase we are seeing today in seniors housing demand from both residents and investors. And it’s why the industry expects the elevation in new supply to stick around for a while even as some of the fundamentals for seniors housing soften a bit.

Since the end of the Great Recession in June 2009, the nation’s 100 largest metropolitan areas have added nearly 4,200 new units on average each quarter.

Fannie Mae’s multifamily economics team studied data from the National Investment Center for Seniors Housing & Care (NIC) that show record levels of rental demand for seniors housing in 2016. This demand pushed up occupancy levels and new construction. Only recently has this new supply caused market fundamentals to soften. But conditions have slackened only modestly.

Staying Healthy

NIC tracks fundamentals for the top 100 markets for multifamily real estate. Among both the larger and smaller of those areas, rent growth, absorption levels, and occupancy look generally healthy.

The top 31 markets saw positive rent growth in the first quarter of 2017. But the growth slowed down in about half of them from the previous quarter. This was the eighth consecutive quarter of growing rents. Fueled by demand, most of these markets have been prospering. But there are some exceptions. Metros like Houston, Las Vegas, and San Antonio are slogging through a mix of elevated new construction and interruptions in demand they did not expect. This has affected their occupancy rates.

Rent growth in the 32nd to 100th most populated markets was also positive. And it also decelerated – falling 0.4 percent to an annual rate of 2.5 percent. Rents have been growing more slowly in the secondary markets than the primary markets since the second quarter of 2013.

Annual rent growth for seniors housing has declined from its recent peak. It slowed 0.4 percentage points during this year’s first quarter to 3.3 percent.

Total absorptions were also below recent record levels. The markets absorbed 2,349 total units in the first quarter of 2017.

And high levels of added inventory weighed slightly on overall occupancies for seniors housing properties. Overall occupancy fell to 89.3 percent in the first quarter – down 0.6 percentage points from the year-earlier level. This possibly marked the high point of a multi-year plateau for the current business cycle.

The number of seniors housing units under construction decreased to 33,641 units in the first quarter of 2017. This was down 4.7 percent from a year ago. And it was the second consecutive quarterly decline.

Watching the Nation’s Economy

Despite the somewhat weaker pulse of seniors housing fundamentals, investors remain optimistic. Total seniors housing sales volume during the first quarter of 2017 was up more than 100 percent from the previous quarter. Sales jumped to $4 billion. This was the highest quarterly sales amount in more than two years.

Some slowing down was almost inevitable considering the remarkably strong performance we saw over many quarters. But the strength of underlying demand for seniors housing over the coming decade should not be underestimated. As long as the economy and housing remain in general good health, we expect demand from seniors to remain steady over the near term.

We are seeing an abundance of new supply for a reason. It is serving the needs of the nation’s growing elderly population. The new supply may have increased inventory levels and softened occupancies. But even if we see no further tightening in inventories over the long term, the prospects for sustainable rent growth for seniors housing appear strong.

Opinions, analyses, estimates, forecasts, and other views of Fannie Mae’s Multifamily Economics and Market Research Group (MRG) included in these materials should not be construed as indicating Fannie Mae’s business prospects or expected results, are based on a number of assumptions, and are subject to change without notice. How this information affects Fannie Mae will depend on many factors. Although the MRG bases its opinions, analyses, estimates, forecasts, and other views on information it considers reliable, it does not guarantee that the information provided in these materials is accurate, current, or suitable for any particular purpose. Changes in the assumptions or the information underlying these views could produce materially different results. The analyses, opinions, estimates, forecasts, and other views published by the MRG represent the views of that group as of the date indicated and do not necessarily represent the views of Fannie Mae or its management.






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