Texas seniors housing market sales volume up 63% over the year
The seniors housing and care sector continues to be a standout investment choice, driven by strong demographics. According to the latest “US Capital Trends” report by Real Capital Analytics, seniors housing and care led investment sales growth, with a year-overyear change of 63%. Seniors housing is considered to be the best investment among residential asset classes, according to a recent report from PWCdata, which cites nearly 60% of the three largest healthcare REITs’ investments are in seniors housing.
Texas’ job growth increased by 2.5% over the year, according to recent data released by the Texas Workforce Commission. The state created 315,600 jobs (not seasonally adjusted) between June 2018 and June 2019. During the same time period, the nursing and residential care facilities sector grew by 2.8% on an annual basis. The report also listed the largest growth in occupations with registered nurses topping the list in June 2019.
Texas’ population grew by almost 380,000 in 2018 and is projected to increase by nearly 477,000 in 2019. According to the U.S. Census Bureau, the state’s growth has slowed its natural increase over the last four years, and migration, both international and domestic have declined. In 2018, there were 3.6 million residents age 65 and older in Texas or about 12.5% of the total population. According to the Texas Demographic Center, this number is projected to grow to 5.6 million, or 16% of the population by 2030, and to over 8 million, or 17.5% of the population by 2050.
Supply and Demand Trends
The National Investment Center for Seniors Housing and Care (NIC) reported an increase of 2.9% in the number of net units absorbed over the year in the primary U.S. markets. In contrast, there was a slight decline in absorption for Texas seniors housing units. On a biannual basis though there were 1,133 seniors housing units absorbed in the first half of 2019 in Texas major metros, an increase from the 569 units absorbed during the first half of 2018. The highest demand was in the Dallas metro where 532 units were absorbed, followed by Houston (360 units), San Antonio (176 units) and Austin (65 units).
The pace of inventory growth in Texas was slower in the first half of 2019 than during the same time period in 2018. In the first half of 2019, inventory grew by 1,025 units, 284 units less than in the first half of 2018. In Dallas, inventory grew by 373 units, in Houston by 332 units, in Austin by 321 units and San Antonio recorded a loss of 1 unit during the first half of 2019. Houston’s inventory growth declined significantly by 340 units over the last six months compared to the first half of 2018.
Texas major metros seniors housing occupancy rates continued to fall during the first half of 2019. San Antonio and Dallas were the only two major markets that saw an annual increase in occupancy. Houston, Austin and overall Texas saw a decrease over the year.
Seniors housings’ annual rent growth rate has been on the rise in 2019 in all Texas metros and reached 3.6% in San Antonio, 2.9% in Houston, 1.8% in Dallas and 1.7% in Austin in Q2 2019. The average monthly rental rate for seniors housing is $3,690, 0.7% higher than the average monthly rate one year ago.
Nursing care trends are not as healthy as senior housing trends. Inventory growth declined in Q2 from 47 units to 30 units. The good news is that occupancy increased marginally due to a lack of new units being added to the market.
Nursing care absorption was positive in the first quarter but turned negative in the second quarter. Year to date, absorption is positive by 207 units. As of the second quarter of 2019, the nursing care average asking monthly rate of $6,623 was 0.4% higher than the average rate in the second quarter of 2018.
According to Real Capital Analytics data, sales volume in Texas increased from $599.5M in the second half of 2018 to $817.8M in the first half of 2019.
The 6-month average cap rate in Texas was 6.2%, 70 basis points below the national average of 6.9%.
The most active investors in the U.S. over the past 6 months were private investors with a 40.9% share, followed by institutional investors with a 31.4% share. In contrast, REITs (listed) represented a 39.8% share in Texas, followed by institutional investors with a 37.3% share. Sabra Health Care REIT topped the list of buyers adding 76 properties to its portfolio over the last 12 months.