In more normal times, whatever that may be, the third quarter is supposed to be a good one for occupancy increases, perhaps the best quarter of the year. Not so in the past three years, however. NIC MAP has reported yet another slow month for seniors housing occupancy, which does not bode well for the rest of the year or for early 2018.

The modest (10 basis points) increase in assisted living occupancy, combined with the modest decrease (-10 basis points) for independent living, does not bode well for the fourth quarter, when recent weather-related events will surely have a negative impact. Following that will be the first quarter flu season problems, which in 2017 lasted well into the second quarter, at least its impact on occupancy. The sector needs a rebound, but we are just not seeing it.

While everyone is waiting for the development slow down, according to the NIC MAP numbers assisted living construction as a percentage of inventory is still a high 8.8%, and the highest we have seen recently. Inventory growth was the highest we have seen in at least three years at 6.5%, and rolling fourth quarter starts versus inventory remains at a relatively high 4.8%. We suppose that the good news is that annual absorption has hit a near-term high of 5.1% for assisted living, helping to mitigate the high pace of new openings. But we still believe that the market will have to wait until 2019 to see any significant relief from the new development, and maybe even later. Even the increase in asking rents dropped below 3.0% for the first time since late 2015. Perhaps providers are being more realistic given the continued discounting in most markets just to get residents in the door. And that discounting is not reflected in reported asking rents, so we usually do not give them much weight.

The independent living market continues to be the strongest sector of the two, with little worry of inventory growth, other than perhaps the new interest in senior apartments with no real amenities. But skilled nursing occupancy keeps on dropping. There was a time when SNF operators were not too worried about that as they were shifting into the short-term stay model, which implied lower occupancy, but higher rates for that occupancy. Now, however, occupancy declines are having a negative impact as those recent drops have been in their most profitable customers, the high-rate Medicare patients.