Senior living market feasibility studies are crucial in any development process. The purpose of the feasibility study is to determine if there is a demand for additional product in the market, and if so, what type of product and at what price point? Additionally, a feasibility study may be completed for current providers to identify market opportunities or provide intelligence to remain competitive in the market.
Health Dimensions Group (HDG) is uniquely positioned to complete these studies as we are both a consulting firm and an operator. Due to this unique setup, we approach every study from both the perspective of a consultant and as a management company with 50 communities in eight states. HDG has vast experience in analyzing senior living markets and has worked with hundreds of providers seeking insight into their respective locations.
HDG’s approach to completing the market feasibility and demand study involves five key phases:
- Phase 1: Project Mobilization
- Phase 2: Determination of the Market Area
- Phase 3: Competitor Assessment
- Phase 4: Demographic and Demand Analysis
- Phase 5: Final Report
HDG likes to kick-off every project with a discussion with your team. This gives us an opportunity to introduce all team members to each other, as well as discuss market dynamics, information that will be requested, and the timeline of the project.
Project mobilization is important as it allows both parties to discuss the market, plans, and expectations for the project. We also discuss the site location and any preliminary work that has been completed to date.
Determination of the Market Area
HDG believes a sound market area definition is crucial to the success of any project. If the market area is too small or too large, the final results will be inaccurate.
The market area is where a majority of future residents will originate—typically between 70–80 percent—with the remainder living just outside the market area, moving to be near adult children, moving back to their home community, or moving closer to medical services.
Market areas consist of the communities the senior living product will attract and generally consists of ZIP codes or census tracts. Factors such as rivers, freeways, state borders, etc., need to be part of the consideration process as these may be natural borders separating communities. The market area is considered preliminary until the competitor assessment has been completed.
In this phase of the project, the primary competitors will be identified. A site visit to each community will verify important items, such as number of units, pricing structure, and market appeal. Site visits also provide an opportunity to learn if the community has income restrictions or accepts Medicaid waivers, and if so, the parameters around these options. Many communities may accept the Waiver but require a length of time an individual must pay privately before they can move to the Waiver program. It is also common for providers to limit the number of individuals paying with Waiver. This information is important when determining the number of market rate and affordable units in the market.
Other observations, such as evaluating marketing materials, commenting on the sales process of the tour, and the condition of the building will be noted. Indications of other early impressions, such as amount of parking, visual appeal, friendliness of staff, and overall appeal of the building, are also included.
All the above will impact the demand in the market, and not only determine the niche your development may fill but also identify the communities you will be competing against.
Demographic and Demand Analysis
The demographics are important when determining what the current population looks like but also what it will look like in the future. All demographics analyses should include current year estimates and five-year projections to establish current need, but more importantly, the future need of senior living in the community.
The demographics will also evaluate how target senior population and households will be changing over the next five years, including the different age cohorts within the senior population. Target households generally consist of head of households age 75 and over, but the primary users of senior living are those age 80 and over.
In addition to the demographics of the target population, there is an increasing focus on the workforce population. It is not uncommon for markets to have a small increase or even decrease in the workforce populations. Particular attention should be paid to the changes in the different age cohorts, such as the entry-level and senior-level employees, as their responsibilities and compensation varies.
At this point a demand is completed to determine if your product can be supported. An effective study will provide the information you need, regardless of whether the results support your desired outcome or not.
The final report will document the sources, clearly identify the market area used in the analysis, identify and describe competitors, analyze demographics, and show the demand for additional senior living products. The conclusions of the market feasibility study will answer why or why not your product can be supported, as well as indicate the risk your organization would have in developing in this market.