High-Rise Independent Living Communities To Dominate Senior Housing Development In Houston
In Houston, more than any other Texas city, developers are building up rather than building out on new senior living developments. This new trend for high-rise developments allows for smaller tracts of land in more urbanized areas.
“Houston already has four or five multistory meaning mid- to high-rise senior living, which is a trend ahead of Dallas at the moment,” Dallas-based Tradition Senior Living founder and CEO Jonathan Perlman said.
In more urban areas, where land prices are more expensive, developers are opting to develop mid- to high-rise communities to justify the price of the land, said Colliers International Vice President Elena Bakina, who is speaking at the Bisnow Houston Silver Tsunami event on Sept. 27.
Perlman said it was more cost-effective to build Tradition Woodway as a high-rise. The 23-story tower in the Tanglewood area will be the company's first vertical development. It broke ground in July, and construction is expected to wrap up in April 2020.
Previous projects by Tradition, including on Buffalo Speedway in Houston and two properties in Dallas, are all single-level properties and required more land than the Woodway location. For example, Woodway will occupy 2.5 acres while Buffalo Speedway sits on 7.5 acres.
Suburban areas are often oversupplied because of the lower barrier of entry and construction cost, Perlman said.
Facilities in a more densified setting also have more units than ones in the suburbs. Outside of the city, projects average about 100 units, while inside the city, the projects are often more than 200 units, Bakina said.
Approaching A Slowdown
While some new projects have been announced, a temporary slowdown in senior housing development is expected, Bakina said. Occupancy rates will continue to slip as the new product is absorbed. She predicts it will take several years before occupancy rates reach high levels again.
The overall stabilized senior housing occupancy rate in Houston in Q2 was 85.4%, a 100 basis point decline over the year prior due to 1,419 units of inventory growth and absorption of 993 units during that time, according to the National Investment Center MAP, which compiles data on the senior housing and care sector.
The growing population, strong demographics and robust local economy are expected to increase occupancy at existing centers and push demand for new facilities in more urban areas in the future, Bakina said. And national trends suggest the impending silver tsunami of the baby boomer generation will help flood the senior housing product with residents.
Though much of that demand will be for urban high-rise product, demand for senior living development will still exist in some suburban markets with large employment pockets like Conroe, Fort Bend and Katy, she said. As more people move into these areas and bring along their parents, the availability of these facilities will quickly decrease.
Independent living communities are dominating the development with continuing care retirement communities following behind in Houston. There were 1,028 senior housing units and 406 nursing care units under construction in Q2, according to Colliers International's Texas Seniors Housing & Care midyear report.
New construction may have a negative impact on existing properties by reducing the short-term occupancy rates and rental growth. Therefore, older communities must find ways to renovate and keep up with the wave of sexy high-rise competitors, CBRE Vice Chairman Aron Will said.
Upgrades can include aesthetic improvements to existing communities or acuity mix shift, he said. For example, a community can change from independent living to assisted living or add a memory care wing to an existing campus.
“Given all of the new purpose-built product delivered over the past five to six years, many of the older communities have had to infuse significant capital expenditure to stay relevant,” he said. “All that said, equally if not more important than the aesthetic of a community, is the operations and quality of care. Having great real estate is an important component, but the operator is equally important with respect to profitability/margins.”
Learn more about senior housing developments in Houston at the Bisnow Houston Silver Tsunami event on Sept. 27.
CORRECTION, Sept. 14, 9:34 a.m. CT: A previous version of this story misquoted Jonathan Perlman when discussing the rise of senior living properties in Houston. The story has been updated.