Real estate investors and developers have followed the regular predictions and headlines around the anticipated spike in the senior population. Many of the research and statistics included are from the period before COVID-19. The virus's long term impact is impossible to determine at this time. However, these trends and forces will continue to make a significant impact.
Seventy-two million baby boomers, approximately 20% of the US's population, will reach their mid 80's by 2030. At around 80, older adults typically move out of their homes and into supportive and safe senior-focused housing. The commercial real estate industry has spent over a decade preparing for this generation to move out of their homes and into senior-focused housing. The commercial real estate industry is assuming that this increasing number of older adults will demand an increased number of senior-focused housing units. But as we move closer to 2030, many are beginning to reconsider this supply focused strategy and are concerned that the development may have gone too far. We may be facing a senior housing bubble.
A combination of two trends is driving this concern, starting with the average age of those moving into senior housing increasing over the past decade. Green Street analyst Lukas Hartwich found that the average moving age had risen from 82 in 2009 to between 84 and 85 in 2019. This increase in average move-in age is likely one of the reasons senior housing occupancy rates have decreased or only slightly increased in the past several years. The national senior housing occupancy rate dropped to 87.8% in the second quarter of 2019. That is the lowest national senior occupancy rate since 2011. Assisted living's national occupancy rate reached 85.4% at the end of last year—only a slight increase from its previous record low of 85.1%. These occupancy rates fluctuate with the continually increasing supply. According to the National Investment Center for Senior Housing & Care, developers added 21,332 new units in 2018, more than double the number of new units added in 2014. Despite the statistical trends, senior housing remains one of the fastest-growing commercial real estate sectors ahead of office, retail, hotels, and apartments.
This combination of demographic and industry trends is not what many had anticipated with this historic demographic shift. To better understand this changing market and its relationship with older adult's evolving expectations architecture firm Perkins Eastman surveyed over 200 leaders in memory care, short-term rehabilitation, and assisted living sector. Perkins Eastman's survey sought to identify and rank the most disruptive forces facing senior housing.
The survey's respondents ranked the four forces:
- New aging in place or community options
- New technologies
- Initiatives to redefine retirement
- An overall paradigm shift towards assisted living
Providers understand the impact each of these forces holds for their future. But like the other concerning statistical trends in the senior housing industry, these four forces can amplify one another. For example, the spread of telemedicine technology may drive an increase in the availability of aging in the community's alternative options. How will senior housing respond to these four forces and statistical trends? Have commercial developers created too many units based around a model of retirement that no longer appeals to baby boomers? It is too early to tell, but with this month's tragic pandemic, the future of senior-focused housing is even further from certain.
The first force changing senior-focused housing is an increase in the availability of aging in place technology. Aging in place technology includes the application of internet-connected devices, voice-first assistants, virtual reality, remote monitoring, and another new tech to support older adult's daily independence. These technologies provide older adult and their support networks, the confidence that their loved one can live independently safely longer.
This peace of mind is an appealing investment for those loved ones that cannot physically check-in or care for their loved one routinely in person. The opportunities for development in this space are endless. According to the Wall Street Journal, this year, venture capital plans on investing approximately one billion dollars into the aging technology space. These significant investments and the fast-growing tech space helps those close to making a move into senior housing remain independent at home a little longer. Assisted living facility providers are aware of this trend and are still confident that their new and future facilties will continue in strong demand for decades to come. They anticipate the market will only grow as their staff begins to implement the same aging in place technology to stretch their staff's abilities and increase their resident's independence. But age tech's use in an assisted living facility cannot compete with the satisfaction it allows of spending a few more years living independently at home.
The new tech tools available to seniors, their support network, and care providers are not the only things changing. The current concept of retirement has evolved into something that may not or can not financially include senior-specific housing. The changing landscape of healthcare coverage, programs, and costs adds a higher level of uncertainty. This uncertainty is especially now the case with the trend of employers freezing or eliminating pension programs and the federal government routinely debating the long term feasibility of support programs. With the level of uncertainty, many have started relying on the gig economy for assistance and employment.
Using an app like task rabbit to handle difficult chores or a ride-sharing app to eliminate risky driving increases a senior's long term independence at home. They may also use these services as an opportunity to earn extra money and supplement their retirement income. Many older adults may rely on a combination of gig economy services as a low cost and convenient option to remain independent much longer. These low-cost services offer the opportunity to explore non-traditional retirement locations, participate in more volunteering, or to explore hobbies outside of the home. Including healthcare costs and assistive app-based services, older adults can piece together a safe living environment at home in any community. Of course, this option is not ideal for those that require more intensive medical monitoring. But, with the budgeting required and low-cost assistive options available, a portion of the older adult population can delay the expensive transition to senior housing.
With new technologies and services catering to seniors, senior living housing must respond to continue to attract new residents. Developing new community layouts and payment plans are essential. The traditional, resort-style retirement community concept may not continue to be attractive to seniors. For many years these facilties have been developed on affordable land in a convenient location by a major road. This "cruise ship on land" model may make the transition from independence less appealing. An example of this new approach is Cantina Communities.
Cantina Community's layouts include flexible spaces for dining and events, an industrial demonstration kitchen, and even a small market. With the goal of developing relationships with local businesses, restaurants, and organizations. This goal is easier to accomplish with their planned developments in more centralized mixed-use locations. Finding the middle ground of convenience to appealing mixed-use locations and affordability may be a challenge. But, Cantina hopes to cut operating costs by removing and unbundling traditional amenities that are primarily used for marketing like the large swimming pools or halfway-gym/yoga studios. Developing a new, creating an approach to what senior housing will be challenging. But incorporating flexibility into their layout and design will help developers and providers overcome this force.
Changing the layout and features available in senior housing is a start. But, the same financial challenges facing seniors are impacting senior care providers as well. These challenges have changed in the past month, but when employment reached record highs earlier this year, many workers elected to leave the senior care industry. Senior housing providers found it difficult to retain and train employees capable of facing the challenges associated with providing care and managing senior residences. Providers were facing competition from higher-paying retail and service job; employee turnover remained consistent. This high turnover led to staffing shortages and dissatisfaction amongst their current and future residents. This same shortage will also impact those that elect to age in place. Especially for those relying on Medicare and other government assistance, the capped cost of in-home care attendants will only ensure a small pool of workers as well. Many companies are working on new apps and models to overcome this shortage of caregivers. But, either in-home or in senior housing, the number of experienced and affordable caregivers will continue to decline as costs rise. The cost for those who provide personal assistance with bathing, dressing, and eating grew by 4.55% in 2019. While the costs of those who offer homemaking services like cooking and cleaning increased by 7.14%. These costs may not continue with the uncertainty ahead in 2020, but at the end of last year, it was estimated the senior housing sector would need to attract and retain 300,000 more workers. This shortage leads to the issue, who is going to manage and operate these new senior housing developments personally?
The increasing move-in age and occupancy rates trends can be worrying for senior housing developers and care providers. Hopefully, the surveyed leaders in the senior care industry have started incorporating their concerns into their designs. For example, if they are concerned that aging in place technology or the paradigm shifts in retirement may make their new facility obsolete. They can take steps today to reduce the impact of those forces on their facility's future. Leaders in the senior housing industry should begin planning creative and cost-effective replies before it becomes too late.