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Multifamily Market Commentary – March 2019

Seniors Rental Housing: Steady Fundamentals in 2018

Seniors housing fundamentals were generally stable in 2018. Rent growth and occupancy remained quite comparable to 

results from the prior year, based on data from the National Investment Center for the Seniors Housing & Care Industry 

(NIC.). Fundamentals improved modestly in fourth quarter 2018, with rent growth and occupancy both showing slight 

improvement compared with the prior quarter. While there are preliminary signs that construction activity is moderating, 

demand for new units has stayed remarkably strong – including a new record level of quarterly absorption achieved in fourth 

quarter 2018. In addition, after easing for much of 2016 and 2017, overall fundamentals appear to have leveled off in 2018, 

with minimal deterioration and some signs of improvement.

Occupancy and Rent Growth Improve Slightly

Historically strong absorption coupled with ongoing inventory additions resulted in occupancy for seniors housing 

properties rising by 0.1 percent in fourth quarter 2018 to 88.0 percent, as seen in the chart below. Majority Independent 

Living (IL) was up 0.1 percent from the prior quarter but down -0.5 percent from a year ago to 90.2 percent. Majority 

Assisted Living (AL) occupancy was unchanged during the quarter at 85.4 percent but down 0.9 percent from a year ago. 

Occupancy by Property Type

Source: NIC MAP Data Service

Total seniors housing absorption reached its highest level on record in fourth quarter 2018, rising to 5,163 units, as seen in 

the chart below. For 2018, absorption rose to its highest level on record, increasing 17 percent from the prior year to 

approximately 14,000 units. The underlying segments both showed improvement in the fourth quarter, although to different 

degrees: Majority IL absorption was up 2.5 percent compared with the third quarter 2018, while Majority AL had another

record quarter with absorption up 34 percent from the prior quarter.

Absorption by Property Type

Source: NIC MAP Data Service

84%

86%

88%

90%

92%

94%

Seniors Housing

Majority Independent Living

Majority Assisted Living

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000 Majority Independent Living

Majority Assisted Living
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Annual rent growth for seniors housing rose to its highest level since the second quarter 2017, increasing slightly from the 

prior period during fourth quarter 2018 to 3.0 percent, as seen in the chart below. Overall, seniors housing annual rent 

growth improved compared to a year ago, increasing 0.3 percent from fourth quarter 2017. The underlying trends for IL and 

AL rent growth differed during 2018: Majority IL improved by 0.7 percent during the year to 3.2 percent; while Majority AL 

declined o.3 percent to 2.6 percent for the year.

Annual Rent Growth by Property Type

Source: NIC MAP Data Service

Construction Eases Further

The number of seniors housing units under construction continued to fall through most of the year, as seen in the chart 

below. In fourth quarter 2018, the number of units under construction declined to 37,355 units, which is the lowest level 

since first quarter 2016. The total number of units under construction is down 15 percent from the end of 2017. In this case

as well, trends differ for the underlying segments: the number of Majority AL units under construction in fourth quarter 

2018 was down 21 percent compared with fourth quarter 2017, while the number of Majority IL units was down 5.7 percent.

Units Under Construction by Property Type

Source: NIC MAP Data Service

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

Seniors Housing

Majority Independent Living

Majority Assisted Living

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Units

Majority Independent Living Majority Assisted Living

Seniors Housing
© 2019 Fannie Mae. Trademarks of Fannie Mae. 3.19.2019 3 of 5

Primary Markets Mostly Steady, although Performance Varies

Rent growth was positive in nearly all of NIC’s Primary 31 Markets throughout 2018 (with the exception of Dallas, which 

had a minor contraction in the first quarter). In the fourth quarter of 2018 San Jose returned to its position as the strongest 

primary market, a title it held for many periods prior to third quarter 2018. It had the highest rent growth and tightest 

occupancy in fourth quarter 2018. Portland had the second highest rent growth in fourth quarter 2018, as well as the third 

highest occupancy. Houston continued to report the weakest occupancy, just behind San Antonio, which reported the second 

lowest.

Occupancy for seniors housing in the nation’s secondary markets (32nd to 100th in size, as defined by NIC) declined slightly 

from the prior quarter to 87.8 percent in fourth quarter 2018, decreasing 0.1 percent, compared with the 0.1 percent 

occupancy increase in the primary markets, as seen in the chart below.

Seniors Housing Occupancy Levels – Primary vs. Secondary Markets

Source: NIC MAP Data Service

Annual rent growth in the secondary markets in fourth quarter 2018 improved from the prior quarter, with the secondary 

markets increasing to 2.9 percent, as seen in the chart below.

Seniors Housing Annual Rent Growth – Primary vs. Secondary Markets

Source: NIC MAP Data Service

The gap between primary and secondary market performance for senior housing narrowed in 2018: rent growth was just 

0.1 percent lower in the secondary markets in 2018 compared with the primary markets; for 2017, rent growth was 0.6 

percent lower in the secondary markets. Occupancy in the secondary markets was just 0.2 percent lower than the primary 

markets at the end of 2018, compared with occupancies 0.6 percent lower in the secondary markets at the end of 2017.

86%

87%

87%

88%

88%

89%

89%

90%

90%

91%

91% 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
© 2019 Fannie Mae. Trademarks of Fannie Mae. 3.19.2019 4 of 5

Sales Rise and Cap Rates Decline

Total fourth quarter 2018 seniors housing sales volume was up 20 percent from the prior quarter to $2.6 billion, as seen in 

the chart below. Compared with 2017, total industry sales volume for 2018 was down 13 percent. The fourth quarter 2018 

sales involved 139 properties, down from 153 properties in the prior quarter. Cap rates fell to their lowest level since second 

quarter 2017, declining to 6.6 percent for fourth quarter 2018, down from (a revised) 7.6 percent for third quarter 2018 and 

6.8 percent for fourth quarter 2017.

Seniors Housing Sales Volume and Cap Rates

Source: NIC MAP Data Service

Buyer composition shifted away from institutional buyers and toward public and private entities in 2018. Institutional 

buyers accounted for 20 percent of transactions in 2018, down from 33 percent in 2017. Publicly owned entities, such as 

publicly traded real estate investment trusts, accounted for 30 percent of 2018 buyer volume, up from 25 percent in 2017. 

Private entities saw the largest change in share, accounting for 44 percent in 2018, up from 34 percent in 2017.

Outlook Remains Steady Short-Term and Stable Long-Term for Seniors Rental Housing 

Seniors housing market conditions were generally steady in 2018, as the ongoing supply surge was met with similarly robust 

demand, particularly in fourth quarter 2018 when a new record level of absorption was achieved in the primary markets. 

Rent growth in 2018 improved from 2017 levels, although majority AL properties lagged overall industry performance. As 

construction activity is showing signs of moderating, occupancy levels are expected to remain steady over the next several 

quarters. Healthy absorption levels should continue, which should also allow for moderate rent growth. As long as there is 

a generally healthy economy coupled with a stable single-family housing market, seniors housing is expected to remain 

steady over the near term. Since many seniors typically sell their home to afford the transition into seniors housing, singlefamily prices can, and do, have an impact on demand. 

Although construction levels appear to be moderating, we believe robust levels of new supply are likely to be an ongoing 

characteristic of the seniors housing industry. Robust development is needed for the vast number of baby-boomers that will 

be crossing into their 80s in the next decade, which is the peak age for entering seniors housing. Supply growth may prevent 

significant occupancy tightening in the long term, but continued strong absorption and positive rent growth appears to be 

sustainable, again, as long as the national economy and single-family housing market remain stable.

5%

6%

7%

8%

9%

10%

11%

 $-

 $1

 $2

 $3

 $4

 $5

 $6

 $7

 $8

Cap Rates

Billions

Seniors Housing Sales Cap Rates
© 2019 Fannie Mae. Trademarks of Fannie Mae. 3.19.2019 5 of 5

Tim Komosa

Economist Manager

Multifamily Economics and Market Research

March 2019

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.