The skilled nursing sector made significant strides in recovery nationally, with positive trends in occupancy rates and demand for care. However, challenges such as labor shortages and constrained liquidity continued to shape the industry landscape.
This is according to Marcus & Milichap, a commercial real estate brokerage firm, which issued its latest national report. The sector’s recovery momentum carried into late 2023, as the national occupancy rate reached 82.2% by the end of the third quarter, the report states. This represented an encouraging 850 basis points increase from the pandemic’s low point, researchers wrote.
The positive occupancy trajectory was underpinned by consistently favorable net absorption, with over 12,000 net enrollments recorded throughout the year. Such absorption numbers were a stark departure from the decade preceding the health crisis when only one year, 2014, witnessed positive absorption, albeit modest, at slightly over 1,000 beds.
Demand for care services was further evidenced by a notable climb in rents, analysts found. The national average rate rose by 3.4% year-over-year in September, marking the fastest gain since 2010. This surge was a testament to the increasing demand for high-quality skilled nursing facilities.
Despite the positive strides in recovery, challenges persisted in the form of ongoing inventory contraction.
“Since the end of 2019, more than 25,000 beds have been removed from the market,” researchers wrote. “While this trend has been underway since 2017, it accelerated after the onset of the pandemic. Rising operating costs have likely led to more closings among some lower-performing facilities.”
As of September, the number of personnel working at skilled nursing facilities remained more than 9% below the year-end 2019 count.
“By comparison, the health care sector overall has grown by 5%,” researchers wrote. “Several factors are likely contributing to this shortfall, including challenging working conditions, increasing overall health services labor needs, and the substantial training required for many positions.”
The sector also faced challenges in investment due to constrained liquidity, as high lending rates hindered transaction activity, researchers wrote.
Trading in the first nine months of 2023 saw a 45% decline compared to the same period last year, aligning closely with figures from the first three quarters of 2015. Sale prices, while dipping from the record levels seen in 2022, remained historically elevated. The pressure among buyers for higher yield options was reflected in these prices. The potential for more stable interest rates in the future was expected to ease these challenges, enabling investors to find common ground and facilitating increased deal volume.
Companies featured in this article:
