Many people recognize the growth to come in the seniors housing industry as the Baby Boomers enter into retirement. According to The Pew Research center starting January 2011 approximately 10,000 baby boomers are reaching the age of 65 each day. This daily trend is anticipated to continue for the next nineteen years. This supports what many people already know and that is we have an aging population.

Investors interested in seniors housing point to the aging Baby Boomer Generation as a reason to invest in seniors housing. Recognition of this demographic trend is also what led me into the industry. Their are tremendous opportunities over the next 30 years serving the growing needs for seniors housing, health care and other services sought by the senior generation.

It is important to note that for approximately the next 15 to 20 years seniors housing will be occupied primarily by the parents of the Boomers and in increasing numbers, the Silent Generation, which follows the World War II generation and precedes the Baby Boomers. As I have pointed out in a prior blog the age of residents residing in seniors housing communities is rising and is at 86.9 years of age, according to The Assisted Living Federation of America. The Silent Generation is smaller then the preceding and succeeding generations.

It is not for another 15 to 20 years until Baby Boomers will be entering rental based multi-unit independent and assisted living facilities in large numbers. For this reason additional analysis is needed before determining if a market is ripe for a new seniors housing community or to invest in an existing seniors housing asset. This demographic trend presents challenges in the seniors housing industry for investor, developers, operators and other vested professionals. To succeed we need to identify markets and properties that will excel during a period when senior growth rates of 85+ in age will be relatively stagnant.

According to recent NIC data the aggregate average for the top 31 markets shows occupancy levels were at a cyclical low of 87.4% for Assisted Living in 1st Quarter 2010 and 87.0% for Independent living in 3rd Quarter 2010. This is down from the most recent cycle peek of 90.7% for Assisted Living in 3rd Quarter of 2006 and 92.7% in 1st Quarter 2007.

NIC data supports why it is important to consider the current micro market trends. Many would consider Arizona and the Phoenix area in particular as a great place to retire; however, according to NIC the occupancy of Independent Living facilities in the Phoenix market declined 780 bases points from 91.5% in 3rd Quarter 2007 to 84.3% in 3st Quarter 2010. The Phoenix Independent Living occupancy rate as of 4th Quarter 2010 has increased slightly to 84.6%; however, the market still remains near the bottom of the 31 major market list provided by NIC. A significant cause for the decline, in addition to economic factors, was the addition of 1,600 IL units to the Phoenix market since 1st Quarter 2008. AL occupancy has rebounded much stronger then IL. AL occupancy in Phoenix is up 400 bases points to 89.4% in 4th Quarter 2010, since reaching a cyclical low of 85.4% in 2nd Quarter 2009.  AL inventory additions in the Phoenix market have been much more limited since 1st Quarter 2008, with only 186 units, with 110 units currently under construction.

This shows the importance of considering micro-market trends. The growth in Baby Boomers retiring is not directly impacting or even correlated to the trends in independent living occupancy rates as some people may incorrectly assume.

Tranquilium provides expertise in identifying strong markets for seniors housing developments and the acquisition of existing seniors housing properties. Ryan Housekeeper services as a buyers representative for investors and is available to serve property owners seeking to sell their seniors housing assets. In addition, Tranquilium provides market study services for landowners to determine an appropriate course of action with their land site. Please contact Ryan Housekeeper at ryanh@tranquilium.com or 734-929-2250 to discuss these and other opportunities further.