© 2017 Fannie Mae. Trademarks of Fannie Mae. 5.15.2017 1 of 5

Multifamily Market Commentary – May 2017

Seniors Housing: Fundamentals Soften but Remain Healthy in First Quarter 

2017

Seniors housing fundamentals softened modestly in the first quarter of 2017, with elevated levels of inventory additions 

moderately overwhelming otherwise healthy levels of absorption, based on data from the National Investment Center for 

Seniors Housing & Care (NIC), an industry provider of seniors housing data. The seniors housing industry experienced 

record levels of demand during 2016, which allowed occupancy to continue at near-term peak levels, despite significant 

additions to inventory. Those conditions eased in early 2017, which resulted in a minor slowdown in rent growth and a 

slight decline in occupancies, though both measures remain relatively healthy. High levels of new supply are likely to be an

ongoing condition for seniors housing, though the number of units under construction has been declining over the past six 

months.

Seniors housing has been in the midst of a multi-year period of robust expansion. Since the end of the Great Recession, 

the nation’s 100 largest metropolitan areas have added nearly 4,200 new units on average each quarter, while 

simultaneously experiencing a sufficient population increase to keep occupancies healthy and maintain steady levels of 

rent growth. As seen in the chart below, the growth of the population of people age 75 and older is an ongoing condition 

for the national economy, with this age group forecasted to double in size over the next 20 years, from around 21 million 

today to over 43 million in 2037.

All Primary Markets Have Positive Rent Growth - Secondary Markets Underperform Primary

Rent growth was positive in all of NIC’s Primary 31 Markets (1st to 31st in size by population) in the first quarter of 2017, 

for the eighth consecutive quarter. Overall, 15 of the 31 primary markets had lower rent growth in the first quarter than 

they did in the prior quarter, which is a slight improvement compared to the fourth quarter. Among the Primary 31 

markets, most have steadily prospered over the past several years, though a mix of high levels of construction and 

unexpected interruptions in demand have resulted in Houston, Las Vegas, and San Antonio having the lowest occupancy 

rates among the large metros.

NIC’s Smaller Markets (32nd to 100th in size by population) continued to have lower occupancy than the Primary 31 

markets, which happened only once before, in the first quarter of 2016. Occupancy levels in these secondary markets fell 

for the ninth consecutive quarter, falling to 88.8 percent, the lowest level since 2011. Rent growth in these secondary 

markets in the first quarter of 2017 followed the decelerating trend in the primary markets, falling 0.4 percent to 2.5

percent. Rent growth again remained slower in the secondary markets compared to the primary markets, which has been 

the case in every quarter since the second quarter of 2013.

 15

 25

 35

 45

 55

Millions

Source: U.S. Census Bureau

Age 75+ Population, by Year (Projected)
© 2017 Fannie Mae. Trademarks of Fannie Mae. 5.15.2017 2 of 5

Absorption Levels Ease in Early 2017 but Have Been Strong for Several Years 

Total absorption for seniors housing declined from the recent record levels, with 2,349 total units absorbed in the first 

quarter of 2017. The results were driven by divergent underlying trends: Majority Assisted Living (AL) absorption was 

down 29 percent compared to a year ago, but Majority Independent Living (IL) absorption was up 92 percent from the 

first quarter of 2016. Throughout 2016, and generally since 2010, absorption levels for overall seniors housing have been 

robust and steadily increasing, albeit with brief interruptions, as seen in the chart below.

Occupancy Remains High After Easing in First Quarter

Under the weight of high levels of inventory additions, overall occupancy for seniors housing properties fell slightly, to 

89.3 percent in the first quarter of 2017, down 0.6 percentage points from year-ago levels. This result possibly marked the 

end of a multi-year plateau that was likely the peak level achieved by the industry in this business cycle. As seen in the 

chart below, Majority IL was down a modest 0.2 percentage points in the first quarter of 2017 to 90.9 percent, while 

majority AL decreased slightly more, falling 0.5 percentage points to 87.2 percent. Both segments remain above the trough

that was observed in the aftermath of the Great Recession, although Majority AL is approaching that level. Given the 

robust supply that segment has seen in in the past five years, this level of occupancy is likely just a result of slightly too 

much supply in a short period.

Absorption by Property Type

-2,000

-1,000

0

1,000

2,000

3,000

4,000

5,000

6,000 Majority Assisted Living

Majority Independent Living

Source: NIC MAP Data & Analysis Service

86%

87%

88%

89%

90%

91%

92%

93%

94% Seniors Housing

Majority Independent Living

Majority Assisted Living

Source: NIC MAP Data & Analysis Service

Occupancy by Property Type
© 2017 Fannie Mae. Trademarks of Fannie Mae. 5.15.2017 3 of 5

Rent Growth Eases from Recent Record Levels

Annual rent growth for seniors housing declined from its recent peak, slowing 0.4 percentage points during the quarter to 

3.3 percent in first quarter 2017. The underlying trends for IL and AL were similar during the quarter as they have been 

for the past several years. Compared to the prior quarter, Majority IL slowed 0.5 percentage points to 3.5 percent in first 

quarter 2017, while Majority AL slowed 0.3 percentage points to 3.0 percent. As seen in the chart below, rent growth rates 

for both segments have been generally increasing since 2013, having matched or achieved record quarterly rates during 

that period.

Construction Activity Remains High but Signs of Easing Emerging

The number of seniors housing units under construction declined for the second consecutive quarter, decreasing to 33,641 

units in the first quarter of 2017. The total number of units under construction is down 4.7 percent from a year ago. 

Compared to the first quarter of 2016, the number of AL units under construction is down 3.8 percent, while IL units are 

down 6.3 percent. Prior to the recent decline, construction activity had been steadily increasing since 2011, as seen in the 

chart below. While the level of construction might initially appear concerning, put in the context of the growing population 

of Baby Boomer retirees and their older cohorts, this level of construction was probably an appropriate response to 

growing demand.

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Annual Rent Growth

Seniors Housing

Majority Independent Living

Majority Assisted Living

Source: NIC MAP Data & Analysis Service

Units Under Construction by Property Type

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Units

Majority Independent Living

Majority Assisted Living

Seniors Housing

Source: NIC MAP Data & Analysis Service

Rent Growth by Property Type
© 2017 Fannie Mae. Trademarks of Fannie Mae. 5.15.2017 4 of 5

Seniors Housing Sales Jump in First Quarter

In total, seniors housing sales volume in the first quarter of 2017 was up 104 percent from the prior quarter, jumping to 

$4.0 billion, the highest quarterly sales total since the second quarter of 2015. The sales involved 421 properties, the 

largest number since the third quarter of 2013. Cap rates were also up sharply from the prior quarter at 8.9 percent, the 

highest quarterly cap rate since late 2009.

Total 2016 sales volume was at the lowest level since 2010 at $7.4 billion, down 49 percent from 2015. As seen in the chart 

below, quarterly sales volumes have been quite volatile from quarter to quarter for the past several years, often the result 

of spikes in sales volume due to large portfolio transactions. Cap rates have also seen significant volatility, especially when 

compared to the steady decline in multifamily cap rates during the same period. Seniors housing experienced a declining 

trend in cap rates from 2013 into 2015 but has seen a steady increase since then.

Near Term Easing Likely but Long Term Should be Healthy

High levels of new seniors rental housing negatively impacted fundamentals in the first quarter of 2017, but market 

conditions remain generally healthy in most markets. While occupancy again saw a slight decline in the first quarter, and 

rent growth slowed from its recent pace, a slowdown was nearly inevitable after many quarters of remarkably strong 

performance. Inventory growth and absorption should continue to be balanced over the next year, with occupancy 

remaining near its current plateau. The sector might experience some easing pressures in 2017, but the solid performance 

under similar conditions in 2015 and 2016 indicates steady underlying demand. The overarching caveat for this sector is 

economic conditions: As long as there is a generally healthy economy and an improving housing market, we expect seniors 

housing demand to remain steady over the near term.

Continued elevated new supply is likely a long-term condition for the seniors housing sector, serving the needs of the 

nation’s growing elderly population. The solid results in the past three years have shown that positive 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 rent growth appears to be reliably sustainable, again, as long 

as the national economy remains stable.

Seniors Housing Sales and Cap Rates

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 & Analysis Service and Real Capital Analytics
© 2017 Fannie Mae. Trademarks of Fannie Mae. 5.15.2017 5 of 5

Tim Komosa

Economist Manager

Multifamily Economics and Market Research

May 2017

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 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.