Skilled Nursing Occupancy to Keep Falling in 2018

Skilled nursing occupancy rates, already sitting at record lows, will continue to plummet in 2018 according to the most recent projections from Marcus & Millichap.

The commercial real estate brokerage predicts that skilled nursing occupancy will fall to 85.3%, a dip of 80 basis points and a new low for the decade.

“The skilled nursing segment is undergoing many changes, and health care reform specifically related to Medicare and Medicaid reimbursements is causing some facilities to shift focus from long-stay custodial-care residents to focus on short-term, post-acute care patients to improve profit margins,” the Calabasas, Calif.-based Marcus & Millichap observed in its first half 2018 analysis.

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For comparison, the National Investment Centers for Seniors Housing & Care (NIC) estimated occupancy at 81.9% in the fourth quarter of 2017, a 66-basis-point drop from the previous quarter.

Still, the overall rise in health care costs will provide higher daily rates amid the lower occupancy, with the company predicting a 2.3% gain to $318 per bed per day by the end of this year. The per-bed day rate has risen at a rate of at least 2.5% each year for the last decade, Marcus & Millichap observed, including a 2.5% jump in 2017.

But despite that ray of good news, the trends appear rather bleak for skilled nursing. Marcus & Millichap put nursing home occupancy at 86.1% in 2017, down 70 basis points from the previous year — a decline that occurred even though the amount of skilled nursing inventory had also dropped.

Among buildings that predominately feature nursing care rooms, operators removed more than 1,700 units last year, the company found, with declines of 1,500 units or more occurring in eight of the last 10 years. The skilled nursing construction pipeline has also withered, with five consecutive years of new-build declines on a unit basis.

These trends have been entrenched within the industry for a while, though sky-high per-bed prices continued to buoy optimism in some circles. However, those gaudy numbers “tempered” over the previous 12-month period, according to Marcus & Millichap, while overall sales of skilled nursing facilities rose 17%.

“Returns in the segment remain in the double digits as buyers seek to underwrite for risks associated with changes in government-funded reimbursement programs,” the company noted.

Written by Alex Spanko

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