Activity Is Resuming In Houston’s Senior Housing Sector

Senior housing facilities across the U.S. were dealt a hefty blow in 2020. The rapid spread of Covid-19 posed a serious threat to the elderly, forcing communities to implement strict lockdown protocols that effectively halted new leasing activity for several months.

More than a year after the onset, average occupancy is finally starting to stabilize across the U.S., including in Houston, which has the highest level of vacancy of any major city. Experts say that growing confidence in vaccines, coupled with pent-up demand, is helping to reverse the pandemic’s damaging impact on the senior housing sector.

“It's been quite a difficult time and felt to some extent, especially last year, that we kind of were on hold,” Colliers International Senior Vice President Elena Bakina said. “Good news is, it's all getting better. But [it was] quite shocking here last year.”

Nationally, 2020 was a very difficult year for the senior housing sector. The average occupancy rate went from 87.4% in the first quarter of 2020 to 78.8% in the first quarter of 2021, according to NIC MAP Vision data cited by the National Investment Center for Seniors Housing & Care.

Houston mirrored the national trend, falling from 81.5% occupancy in Q1 2020 to 72.8% in Q1 2021, NIC Chief Economist Beth Mace said. At both the national and greater Houston area level, senior housing occupancy rates bottomed out in the first quarter of 2021. 

The steep fall in occupancy across the U.S. reflected restrictions at the federal, state and local levels as well as self-imposed moratoriums on new move-ins by senior housing operators.

Retirement Center Management President David Keaton told Bisnow there was also less public interest in placing elderly family members in senior housing amid news coverage of Covid-19 tearing through nursing homes and senior care communities.

“For several months, from March forward to almost the new year, we really restricted the number of folks coming in for tours. And quite honestly, people weren't coming anyway. The general public was pretty fearful as well, based on all the stories going around,” Keaton said.

RCM operates 13 senior housing locations in the core Houston area, including independent living, assisted living and memory care facilities. Keaton said all new leasing activity essentially came to a halt from March to December 2020. 

“The problem we have, of course, is that people leaving the communities, either for a higher level of care or death, still continues at its usual pace,” Keaton said.

In normal times, annual turnover rates for RCM's senior housing communities averaged between 20% and 40%. That rate mostly continued as usual, although elderly people living in independent living communities chose to delay moves during the pandemic, according to Keaton.

“They would try to bring in private caregivers. Obviously, they didn't want to move, and nobody wanted to go the route of assisted living or memory care unless it was just a real dire need,” Keaton said.

It has only been in the past couple of months that senior housing has begun to indicate a recovery. Average occupancy remained relatively stable in the second quarter of 2021, a ripple effect of the growing momentum of the vaccine rollout. NIC data showed that from a national average of 78.8% in Q1 2021, the occupancy rate dropped only slightly to 78.7% in Q2.

“The vaccines started to roll out in December. And there's, I think, overall general relief because of that. We've seen the case counts for Covid go down dramatically, and the deaths associated with Covid have gone down dramatically,” Mace said.

Bakina said the individual performance of senior housing communities has varied wildly, depending on local infection rates, geography and whether the facility opened during the pandemic. Some have stayed stable over the past 15 months, while others lost a significant number of residents.

In Houston, average occupancy made positive gains in the second quarter of 2021, rising from 72.8% in Q1 to 73% in Q2, NIC data showed. 

Still, Houston has the lowest senior housing occupancy of any of the 31 major metro areas tracked by NIC. Mace said that that rate tended to run low even before the pandemic because of robust inventory growth. 

Houston is considered a growth market. The broader Houston-The Woodlands-Sugar Land metropolitan statistical area was estimated to have more than 7.1 million people in 2020, and that figure is expected to grow to 10.7 million people by 2045, according to the Houston-Galveston Area Council.

“There's a constant stream of people moving into the general area. And as a result of that, developers are constantly building to meet and match that population growth that's coming into the area,” Mace said.

That enthusiasm has kept occupancy rates below the national average. In Q1 2020, Houston had 18 senior housing communities under construction. Four of those properties came online during the pandemic, meaning that 14 communities are still expected to deliver over the next 24 months, according to NIC data. 

“The problem is that developers are always a very optimistic group. They tend to overbuild, and in the case of Houston, that has been the issue that has held down occupancy,” Mace said. 

That pipeline of 14 communities should deliver between 1,800 and 1,900 new units. The new units under construction are the equivalent of about 8.5% of Houston’s existing inventory, whereas the national average sits at about 5%. Mace noted that the ratio has improved from Q1 2020, when units under construction represented 12.9% of Houston’s existing inventory.

Lenders became more cautious during the pandemic, pulling back on debt financing for senior housing, according to Mace. That led to a slowdown in construction starts, which may appear in national pipeline numbers over the next few years. But Mace said that trend has reversed as the economic outlook has improved. 

“All of that adds to developers' generally very positive, optimistic outlook. So you will see new development starting to break ground,” Mace said.

Though occupancy suffered at both the national and local levels, average rent prices for senior housing actually rose during the pandemic. The NIC found that in Q2 2021, annual rent growth across all senior housing property types in the U.S. grew by 1.2% year-over-year, with the biggest increase seen in nursing care.

Rents also grew in Houston throughout 2020. Average monthly rent for independent and assisted living communities was $3,848 at the end of 2019, and rose to $3,869 by mid-2020, according to a report from Colliers International. That average had reached $3,976 by the end of the year. Bakina told Bisnow that the next averages for mid-2021 should be available in August.

Keaton said senior housing operators like RCM increased their rates because they had to contend with higher operational costs, particularly around cleaning and safety. He said he hasn't seen much pushback from residents, because most people have been understanding of the financial pressures on providers.

The cost of labor also increased significantly during the pandemic as staffing became much more difficult. Salaries and hourly rates went up to attract workers, and many places also started offering sign-up bonuses. As hotels began to ramp up again, senior housing communities have also been competing for similar employees, such as housekeepers.

“I do think the sign-on bonuses will start to fade out, we won't see that so much as more employees or potential employees become available. But base rates, I don't know. Time will tell on that, whether we're able to back those back down or if this is just the new baseline,” Keaton said.

The pandemic forced many people to put their plans on hold, but the experts that spoke to Bisnow said that the rising tide of new leads indicates plenty of pent-up demand. The growing momentum of the vaccine rollout has led to a big rise in inquiries, which could translate into move-ins over the next few months.

“Our June new leads were higher than anything we've seen in the last two years,” Keaton said. 

Likewise, Bakina said that because vaccines have bolstered confidence, many facilities are now holding lots of physical and virtual tours, which will result in rising occupancy levels in Houston.  

“I am hearing from clients that they are leasing back, getting more rents signed and more tours scheduled,” Bakina said. 

With single-family home prices skyrocketing in the Houston area, Mace noted that for many older people thinking about the transition, now is a particularly favorable time to look at selling and using the high returns to finance a move into senior housing.

“Homes have appreciated significantly in value. That's going to provide the confidence and the means for people to move into senior housing. If they were hesitant about it … well, this would be a good time to do that. Prices are so strong,” Mace said.