Skilled nursing facility occupancy has been on a steady rise for 13 consecutive quarters, signaling long-term demand for care services, according to a recent GlobeSt. report. To shed light on the evolving trends in this sector, we’ve invited two industry experts—Zach Bowyer, Executive Managing Director of Valuation & Advisory at Cushman & Wakefield, and JP Emery, NCARB, MBA, Regional Senior Living Practice Area Leader at Gensler. Below, they share their insights on the future of skilled nursing and its broader implications for healthcare and real estate.
1. Key Drivers of Skilled Nursing Occupancy Growth and Its Impact on Healthcare and Real Estate
According to Bowyer, “skilled nursing occupancy is still recovering from the 74% low that was realized during the COVID-19 pandemic. Though occupancy has shown positive momentum, with the average occupancy of 84.5% remaining below pre-pandemic levels.” This trend is supported by reports showing skilled nursing occupancy climbing back from pandemic lows, as seen in the McKnight’s article, Senior living sees overall occupancy increase for 12th consecutive quarter , which notes that senior living occupancy has also been increasing, with assisted living “pretty much” having recovered from its pandemic occupancy lows. Bowyer adds, “This evolution should help attract private and government investment dollars to help improve the quality of life for our senior population.” However, he emphasizes that the recovery process must also address workforce challenges. Nursing aides and other staff have been deeply affected by PTSD and burnout after working in “nightmare” conditions during COVID-19, as reported in an NPR article, Nursing aides plagued by PTSD after ‘nightmare’ COVID conditions, with little help .
In contrast, Emery takes a different view, stating, “Skilled Nursing is declining as a model of care for older adults.” According to Emery, the recent increase in occupancy rates is primarily due to post-COVID recovery. He explains, “During COVID, occupancy in Skilled Nursing beds plummeted from just over 500,000 beds to 430,000 in mid-2020. Occupancy now is still substantially below pre-COVID levels, at around 470,000 beds. However, this recovery is approaching what could be considered ‘stable’ occupancy, following a long-term trend since 2006 of decreasing occupancy.”
2. The Decline in Skilled Nursing Bed Supply: Implications for Operators, Investors and Residents
Bowyer sees the decline in bed supply as an opportunity for consolidation within the skilled nursing sector. He notes, “Looking at the average occupancy of 84.5%, there is still room for consolidation. There is a very broad range in the quality and condition of nursing homes, with a significant percentage of them past their economic life, poorly ventilated, and with two and sometimes up to four beds in one room.” He believes this trend will lead to the removal of less desirable properties from portfolios, with Real Estate Investment Trusts (REITs) and other owners focusing on high-quality, more modern facilities. One example of this shift is the conversion of an old Alvarado Hospital in San Diego into a psychiatric inpatient facility, as reported by NBC San Diego . Bowyer continues, “From a resident standpoint, most are being relocated to newer and better-quality homes, with the consolidation allowing operators to provide a higher quality of care.” He also highlights the investment opportunity, saying that these older properties are often being repurposed for adaptive reuse, such as conversion to behavioral health facilities, which can address other underserved elements of the population.
On the other hand, Emery focuses on the longer-term challenges posed by the decline in the number of skilled nursing beds. He explains, “The supply of Skilled Nursing beds has also been on a steady decline since 2017, with reimbursement reductions and changes within CMS driving providers to more short-term stays.” According to Emery, this trend will only accelerate, with the aging population contributing to a steady increase in demand for skilled nursing care. “The number of beds can be expected to continue to decline, and the number of age-qualified residents will continue to increase through 2030,” he notes, adding, “We can expect access to Skilled Nursing to become challenging, with occupancy rates climbing and the number of available beds continuing to decline.” In addition, as reported by Skilled Nursing News, staffing shortages have further contributed to the consolidation of beds within the sector, compounding the challenges facing both providers and residents. Addressing these workforce issues, including improving training and work conditions, could help mitigate some of these challenges and support the sector’s recovery.
3. Rising Costs, Supply Chain Challenges and Their Impact on Affordability
Bowyer believes that, from a resident's standpoint, affordability is not the major issue, as “85% to 95% of the daily rates in nursing homes are government-funded.” However, he emphasizes that inflationary costs and labor availability are significant challenges, “the primary factors that continue to strain operating margins at a property level and affect resident care outcomes.” Bowyer also notes that while states are increasing reimbursement rates to help offset these challenges, these increases can vary by state, which is a critical factor for investors to monitor: “These increases can be state-specific, something investors are paying very close attention to.” Rising costs are expected to vary by service, with projections showing a sharp increase in home health costs. As reported by Forbes , “older adults and younger people with disabilities” will experience the greatest impact, with overall home health costs expected to double from $113 billion in 2019 to $226 billion by 2030. This is an astounding number that will undoubtedly shape the market for skilled nursing and long-term care.
In contrast, Emery argues that the challenges go beyond reimbursement rates and are rooted in operational constraints and labor shortages. He highlights the ongoing strain on skilled nursing facilities, saying, “Skilled Nursing is at a challenging time operationally and is also extremely labor constrained.” He points to the financial impact, noting that “net operating margin continues to be a substantial problem, with the median community operating at -0.4% and the lowest quartile operating at -9.7%.” According to Emery, the rising costs and supply chain disruptions are especially troubling in high-cost-of-living markets, where the supply of skilled nursing beds will likely decline more sharply. He explains, “Except for private pay skilled nursing beds – a small component of the market overall – we should expect to see the sharpest decline in supply of beds in the highest cost of living markets.”
Bowyer and Emery’s varying perspectives underscore the complexity and uncertainty in today’s skilled nursing and healthcare markets. As factors like rising costs, labor shortages and changing reimbursement policies continue to evolve, only time will reveal how these pressures will reshape the industry and affect the accessibility and affordability of care.
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