© 2018 Fannie Mae. Trademarks of Fannie Mae. 3.16.2018 1 of 4

Multifamily Market Commentary – March 2018

Seniors Rental Housing: Fundamentals Eased Modestly in 2017

Seniors rental housing fundamentals eased modestly over the course of 2017, with occupancy levels declining slightly from 

the prior year’s levels and rent growth rates slowing, based on data from the National Investment Center for Seniors Housing 

& Care (NIC), a leading industry provider of seniors housing data. These indicators softened in the first half of 2017 but were 

remarkably steady in the fourth quarter of 2017, with occupancy levels and rent growth rates virtually unchanged from the 

prior quarter. There is still ongoing demand for seniors housing, but the surge of new inventory appears to be preventing 

occupancy levels from rising. Rent growth rates remained positive in 2017 but were below the above-average levels achieved 

in 2016. Continued deliveries of new units is likely a long-term condition for seniors rental housing, and in late 2017 the 

number of new units under construction began to rise again, albeit just slightly.

Most Primary Markets Continued Steady Performance in 2017

For the second consecutive quarter, year-over-year rent growth was positive in all but one of NIC’s 31 primary markets in 

the fourth quarter of 2017. Overall, 17 of the 31 primary markets had lower rent growth in the fourth quarter than they did 

in the prior quarter, which was a slight improvement compared to the third quarter. 

San Jose’s reign as the strongest seniors housing market continued throughout 2017, after reporting the highest occupancy 

level and rent growth rate among the 31 primary markets at year end. In the fourth quarter, Seattle and Los Angeles also led 

the way in rent growth compared to a year ago, with Los Angeles reporting one of the stronger improvements compared to 

the prior year. Kansas City underperformed in the fourth quarter, as it experienced its second consecutive decline in rent 

growth, resulting in a minor contraction for the quarter. It continued to be among the five least-occupied primary markets. 

San Antonio had the weakest occupancy among the primary markets throughout 2017, likely resulting in the market’s below

average rent growth, which is likely attributable to the metro’s ongoing supply surge.

Secondary Markets Eased More than 

Primary

Occupancy levels in secondary markets 

(32nd to 100th in size) were unchanged 

from the third quarter at 88.3 percent in the 

fourth quarter of 2017, after falling steadily

in most quarters since 2014. Occupancy 

remained lower in secondary markets than 

in the primary markets, as seen in the chart 

to the right. Compared to a year ago, 

occupancy in the smaller markets was down 

0.6 percent in the fourth quarter. 

Rent growth in the secondary markets in 

fourth quarter fell more than in the primary 

markets, with the secondary markets falling 

0.5 percent compared to the third quarter to 

1.9 percent, as seen in the chart to the right. 

Compared to a year ago, fourth quarter 2017

rent growth declined more significantly in 

the secondary markets than in the primary 

ones, falling 1.3 percent compared to 1.1

percent in the primary markets.

86.0%

86.5%

87.0%

87.5%

88.0%

88.5%

89.0%

89.5%

90.0%

90.5%

91.0% Primary Markets

Secondary Markets

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0% Primary Markets

Secondary Markets

Occupancy Levels - Primary vs. Secondary Markets

Annual Rent Growth - Primary vs. Secondary Markets

Source: NIC MAP Data Service
© 2018 Fannie Mae. Trademarks of Fannie Mae. 3.16.2018 2 of 4

Steady Rent and Occupancy in Second Half of 2017

After declining in late 2016 through mid-2017, occupancy for seniors rental housing properties was unchanged in the fourth 

quarter of 2017 at 88.8 percent, but remained 0.7 percent down from the prior year, as seen in the chart below. Majority 

Independent Living (IL) was unchanged from the prior quarter at 90.6 percent, but down 0.5 percent from a year ago. 

Majority Assisted Living (AL) occupancy was also unchanged from the prior quarter at 86.5 percent, a 1.0 percent decrease 

from the fourth quarter of 2016.

Rent growth for seniors housing was down slightly in the fourth quarter of 2017, declining to 2.6 percent, 0.1 percent below 

the prior quarter and 1.1 percent below year-ago levels, as seen in the chart below. The underlying trends for IL and AL 

diverged slightly: Majority IL rent growth was unchanged at 2.4 percent for the fourth quarter of 2017, while Majority AL 

rent growth slowed more measurably, declining 0.4 percent to 2.7 percent.

Total seniors rental housing absorption in the fourth quarter of 2017 was 4,589 units, the third-highest level on record, as 

seen in the chart below. Results for the underlying segments were similar during the quarter: Majority IL absorption was 

up 12.0 percent compared to the third quarter, and Majority AL absorption was up just 4.0 percent, although fourth quarter 

2017 was the third-highest AL absorption level on record.

86%

87%

88%

89%

90%

91%

92%

93%

94%

Seniors Housing

Majority Independent Living

Majority Assisted Living

0.0%

1.0%

2.0%

3.0%

4.0%

5.0% Seniors Housing

Majority Independent Living

Majority Assisted Living

Annual Rent Growth

Occupancy

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000 Majority Assisted Living

Majority Independent Living

Absorption by Property Type

Source: NIC MAP Data Service

Source: NIC MAP Data Service

Source: NIC MAP Data Service
© 2018 Fannie Mae. Trademarks of Fannie Mae. 3.16.2018 3 of 4

Construction Activity Level Steadied

After decreasing earlier in 2017, the number 

of seniors rental housing units under 

construction rose slightly in the fourth 

quarter of 2017 to 39,354 units, the secondhighest level on record, as seen in the chart to 

the right. The number of units under 

construction was up just 0.3 percent from a 

year ago. Compared to the fourth quarter of

2016, the number of AL units under 

construction was down 0.9 percent in the 

fourth quarter of 2017, while the number of IL 

units under construction was up 2.1 percent. 

The number of units added to inventory in the 

fourth quarter declined to 5,127, up 17.2

percent from a quarter ago but down 16.7

percent from the fourth quarter of 2016.

Sales Fell in Fourth Quarter

Total seniors rental housing sales volume in 

the fourth quarter of 2017 was down 70

percent from the third quarter to $1.1 billion,

but annual volume 0f $9.9 billion for 2017 was 

up 31 percent from 2016, as seen in the chart 

to the right. Fourth quarter’s sales involved 72 

properties, the fewest since the first quarter of

2010. NIC attributed the slow sales to 

hesitation by investors waiting for resolution 

of tax reform. Cap rates fell from the prior 

quarter to 6.5 percent in the fourth quarter, 

down modestly from (the revised) 6.8 percent

in the third quarter.

Industry Outlook Remains Positive in 

2018

Seniors rental housing market conditions remained generally stable in 2017. The continued delivery of new units into the 

market was once again met with steady demand, though these new units were likely the cause of the minor easing of rent 

growth later in the year. Rent growth in 2017 slowed from the rapid growth in 2016; the slowdown was difficult to avoid 

after so many quarters of remarkably strong performance. Over the next year, inventory growth is expected to outweigh 

absorption, resulting in modest easing of occupancy levels, particularly for Majority AL units. However, the solid 

performance of absorption levels indicates steady underlying demand, with the potential for rent growth to stay positive. 

The overarching caveat for this sector remains economic conditions. As long as there is a generally healthy economy coupled 

with a stable single-family housing sales market, seniors housing demand is expected to remain steady over the near term.

It is important to note that the seniors rental housing sector is expected to experience robust levels of new supply for the 

foreseeable future to meet the needs of the nation’s expanding older population. The solid performance since 2012 has 

shown that rent growth can be attained even when new supply results in rising levels of inventory and softening occupancies. 

Supply growth may prevent further occupancy tightening in the long term, but continued positive rent growth appears to be 

sustainable as long as the national economy remains stable.

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

Units

Majority Independent Living

Majority Assisted Living

Seniors Housing

5%

6%

7%

8%

9%

10%

11%

 $-

 $1

 $2

 $3

 $4

 $5

 $6

 $7

 $8

Cap Rates

Billions

Seniors Housing Sales

Cap Rates

Source: NIC MAP Data Service

Units Under Construction

Seniors Housing Sales and Cap Rates

Source: NIC MAP Data Service
© 2018 Fannie Mae. Trademarks of Fannie Mae. 3.16.2018 4 of 4

Tim Komosa

Economist Manager

Multifamily Economics and Market Research

March 2018

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.