What’s Ahead? (Bring it On, Senior Living Executive, March/April 2011)

So what may 2011 hold for assisted living? First, consider the prognosis for the economy in general. On the job front, the unemployment rate was 9.6 percent as of December 2010, down from its high of 10 percent, but unlikely to go much lower for the foreseeable future. According to S&P/Case-Shiller, house prices were down 1.6 percent in third-quarter 2010 compared with a year earlier. Although economic indicators are starting to improve, it’s not until third-quarter 2011 that economists predict more measurable improvements in the U.S. economy.

For the assisted living sector, we know the near-term trends on the supply front. There are 2,300 units scheduled to be completed by the end of 2011. That equates to about 1.5 percent inventory growth on an annual basis. So if the current absorption level persists—and we look for it to remain at around 1.5 percent annual growth—then occupancy should remain stable for assisted living through the end of 2011.

And how about rent growth? If occupancy rates hold steady, will operators see pricing power in 2011 that will enable them to raise rents? Once again, that’s going to depend upon the dynamics of the local market. A number of key factors will have to be considered: Is the market still seeing housing pricing loss? Is the job market flat or even losing jobs? Is a significant amount of new construction coming online? If so, then there may not be a great deal of pricing power in that market.

On the other hand, if there’s no new product coming online, if the housing market at least seems to have stabilized, if job growth is stabilized to positive, and if absorption seems to be ticking up, then that suggests there may be some pricing power. Of course, most markets will show a combination of these factors, and there may be mixed signals. But at the very least, using data to analyze trends can point out red flags that need to be taken into consideration—or give an indication the time may be right to introduce a price increase.

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