Skilled Nursing Sector Shows Investment Promise Amidst a Shrinking Supply of Beds

The latest research report from Marcus & Millichap for the first half of 2024 reveals promising trends for skilled nursing facilities, highlighting their resilience amidst a shrinking supply landscape.

Compiled with help of NIC Map Data Service, the report from the commercial real estate brokerage firm released Tuesday underscores the positive net absorption in the sector, which analysts said contributed to an upward trajectory in occupancy rates and rent growth.

According to the report, the skilled nursing sector experienced an 11th consecutive quarter of positive net absorption, resulting in an occupancy rate increase of 300 basis points year-over-year, reaching 82.9%. This momentum is expected to persist, supported by a decrease in competition among existing properties. Over the past decade, the national supply of beds has contracted by nearly 38,000 beds, with some operators opting to close or consolidate their facilities, analysts wrote.


Regional analysis indicates that the Great Plains area witnessed the largest drop in local supply, leading to bolstered occupancy rates, positioning it as the most recovered among U.S. regions entering 2024. Moreover, fewer new beds are being constructed, with the current pipeline at its smallest on record, and is particularly limited in the Mountain and Southwest regions.

However, the report also highlighted challenges faced by operators, notably the ongoing labor shortage, which has persisted since the pandemic. Skilled nursing employment remains significantly below pre-pandemic levels, with approximately 137,000 roles unfilled at the end of 2023. Staffing shortages have further contributed to the consolidation of beds within the sector, with factors such as challenging working conditions and additional training requirements exacerbating the issue.

Despite these challenges, the report outlines investment trends that signal optimism in the sector. Long-term demand projections, driven by an aging population, have contributed to increased transaction rate, despite higher debt costs and tightened lending requirements. Pricing realignment, reflected in a decrease in the national average price per room, indicates a maturing market where buyers and sellers are finding common ground, analysts noted.


“Investor sentiment should further improve moving forward, amid strengthening

fundamentals and optimism for more favorable interest rates,” analysts wrote.

However, they also underscored the need for policymakers to address barriers to entry, such as proposed legislation aimed at widening access to training and education for skilled nursing professionals.