Feasibility studies for senior living projects, including independent living, assisted living, nursing homes and CCRCs throughout the United States and the United Kingdom have to change. The global novel coronavirus pandemic and related COVID-19 healthcare crisis have created a new normal for feasibility studies. 
Market Analysis – Before & After
Before the COVID-19 pandemic, demand and supply analysis would start with an initial measure of demand in the primary marketplace area. In an assisted living feasibility study, for example, demand among the age, income and otherwise qualified consumers in that marketplace area would be carefully analyzed to see how that demand matched the supply (available units) in that area. This demand and supply ratio is an important market characteristic to determine if a proposed project should go forward. If there is a demand / supply mismatch, this often explains why occupancy is disappointing in a specific property. If there are too many available units for the local demand, occupancy will be poor. In this type of market study, demand demographics and the available supply of assisted living units would be reviewed. If the assisted living supply appears inadequate, or otherwise unable to meet the demand from the age, income and asset qualified individuals in the marketplace area, the market study would move forward to a feasibility study.
An extremely important, and highly localized component of and assisted living market analysis is the acceptance of seniors’ housing as a solution for families and consumers. Sometimes referred to as penetration, this is the ratio of qualified individuals who are, or who would consider living in a particular class of seniors housing (like assisted living). Not everyone who is “qualified” would consider living in assisted living, so it’s important to have measures of penetration to realistically adjust the total number of qualified consumers. Before COVID-19, the national estimate of assisted living penetration was ~12% and ranged from 7% to over 30%. Acceptance, or penetration is a highly localized metric.
The Viral Factor
COVID-19 disproportionately impacted congregate care centers, including assisted living residences. In many places in the US and the UK, 50% or more of the recorded fatalities from COVID-19 were in age qualified congregate care centers (including assisted living residences). These facts, and the extremely negative media coverage they received have created damage to the perceptions of seniors’ housing, including assisted living. These changed perceptions will have a lingering negative affect on acceptance and therefore penetration.
Currently, and for some time into the future, all seniors’ housing market studies will have to incorporate a “viral factor” to adjust anticipated penetration. How can we do that?
The first place to start is with the current level of acceptance in each marketplace area. Because penetration is highly localized, there is simply no way to create an index that will work across every marketplace. Stackpole & Associates have measured assisted living penetrations, for example, from 6% in some locations to over 30% in others. Where the penetration is low, the negative effect of the “virus factor” will be relatively small, since many of the choices to accept congregate seniors’ housing are need driven. In the marketplace areas where penetration is very high, we anticipate that the negative effect of the “virus factor” will be large, but recover quickly, especially in those locations where the assisted living residences have effectively managed the media in response to the crisis. This recovery will be influenced by confirmation bias. In high acceptance marketplaces, with so many people having chosen congregate seniors’ solutions, they and their families and friends do not want to be seen as wrong. Penetration, or acceptance rates for seniors housing solutions in high acceptance rate marketplace areas may initially be 50% or more of the pre-COVID-19 levels. On the other hand, in low acceptance marketplaces, the high infection and death rates in congregate seniors’ centers will be seen as a confirmation of their choice to avoid this solution. The penetration threshold for the low acceptance marketplace areas will be buoyed by need, such as psychological, neuromuscular and / or other disabilities.
Is Your Project Feasible?
In a feasibility study, the proposed project is evaluated from the economic perspective of whether or not the anticipated rents (or other charges) can support the operating costs and provide suitable margins. This type of feasibility analysis is often done from several perspectives to carefully determine whether the income from the proposed project will support the operating costs as well as the capitalized costs of land, construction and lease-up.
This assumes that the available units can be filled up or absorbed. The COVID-19 pandemic as significantly impacted how we determine if any given project is “feasible.”
In independent living, assisted living as well as CCRCs, the available information about market rents and charges, as well as how quickly units have historically been absorbed in the marketplace, are important factors in determining overall market feasibility. How quickly new units have been absorbed in a marketplace area is of particular interest, and a good feasibility study will include past and predicted absorption rates, to include a “viral factor.”
For assisted Living, independent Living and CCRCs, as well as nursing homes, conducting thorough market feasibility studies helps determine likelihood of success, as well as the best way to configure the proposed project in terms of number of units, services to be provided, how best to promote or advertise and sell services to prospective customers and consumers. These marketing and sales issue can be derived several ways including focus groups, telephone or in-person surveys, conjoint research (also called “trade-off design” and “multi-dimensional scaling”) and interviews with opinion leaders and referral sources in the marketplace area.
While many of the steps to a market analysis and feasibility study will remain the same, COVID-19 has changed the responsible approach in several important ways, including the addition of adjustments for the impacts of this global tragedy.
Contact Stackpole & Associates
To learn more about market studies and market feasibility research, please contact Irving Stackpole by telephone at (617) 719-9530, or by email at istackpole@stackpoleassociates.com