Hopes of Bigger Development Year in 2026 Fading as Senior Living Operators Turn Inward

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Last year was not the big year for new development that the senior living industry hoped for. Now, almost halfway into 2026, owners, operators and investors are still waiting, with little indication as to when conditions will turn the corner.

The senior living industry faces a growing gap between demand and the number of open communities. Though operators believe they can subsist in the meantime by growing occupancy and margins, average occupancy rates might not tell the whole story with regard to a community’s future upside.

At the same time, fuel, energy and insurance costs are rising, imperiling projects that might have penciled out in a previous cycle. The most recent consumer price index report showed the annual inflation rate increased 0.6% at the end of April, reaching 3.8% over the last 12 months. Energy costs have risen 17.9% compared to last year, driven by oil supply issues caused by the U.S.-Iran war.

The average senior living construction cycle is now stretched to 29 months, meaning that any project that starts today is unlikely to open quickly. That’s not to mention the financing and due diligence needed to get projects to the construction phase. According to NIC MAP, a 29-month construction cycle means that market assumptions could be less plausible as time goes on and as cost overruns “compound faster.”

Three main factors that can’t be solved by any one company – labor shortages, construction costs and access to financing – all remain more difficult than in the past and will continue to weigh on development in the near- and mid-term.

That isn’t to say companies aren’t notching new development projects – they are, but only if they can justify rates needed to gain a proper return on investment. Also making the state of new development tough is that buying remains a better bet than building, even if some companies are seeing replacement costs and development costs narrowing ever-closer to parity.

Construction costs and financing remain the two biggest challenges to senior living development, even while development fundamentals remain strong, NIC Senior Principal Omar Zahraoui told me.

In this week’s SHN+ Update, I analyze recent data on development and construction and offer the following takeaways:

• Why conditions for development could only become more difficult in near-term

• How operators are controlling expenses amid rising costs

• Using occupancy improvements as growth mechanism

Supply gap, rising costs push development boom further off

Last year was not a big development year for senior living. This year is not shaping up to be one, either.

NIC MAP data shows that the senior living industry faces a supply gap of 370,000 units by 2030, assuming the industry builds 191,000 new units in that timeframe based on current construction rates.

In the latter half of 2025, NIC MAP reported a 0.7% annual increase in inventory growth for new senior living construction and 1% year-over-year inventory growth from 2024 to 2025. This comes as more than half of NIC MAP primary markets have no development projects underway and financing remains largely unattainable.

This shows that senior living is on pace to underdeliver when taking into account the rising demand from the incoming baby boomer generation. The industry is not catching up to demand, and it is falling further behind where it should be.

In the first quarter of 2026, the senior living industry added units equal to 0.4% of total inventory as project timelines lengthened, reflecting increased review of financing, procurement and risk, according to a recent Weitz Co. report.

As projects do move forward, they are taking longer to finish. As I wrote last month, there are several macroeconomic factors that still serve as significant roadblocks to providers growing through new development.

What is significant to me is that not only are challenges to new senior living development persistent, they are so daunting that providers have little ability to outmaneuver them.

This week, Yardeni Research strategist and economic expert Ed Yardeni predicted a potential interest rate increase by the Federal Reserve at its upcoming July 29 meeting and, as Reuters reported on May 29, more Fed policymakers are considering an interest rate increase to combat rising inflation. An interest rate increase – not a cut – is a move that some companies did not price into their plans looking ahead.

Also on May 29, Fed Vice Chair for Supervision Michelle Bowman said during a recent economic conference in Iceland that “should disruptions persist well into the second half of the year we could start to see broader effects on inflation.”

Interest rate volatility makes it harder to underwrite projects, and this uncertainty will continue to discourage new starts just when the industry needs to start on new projects the most.

But the industry is not in the same place as it was before the first interest rate cuts as occupancy is higher and net operating income recovery is well underway. While supply growth remains limited, investors have “begun to reengage more selectively,” Zahraoui told me.

“The fundamentals are stronger today,” he said. “Additionally, both sides of the capital stack (debt and equity) need to realign before we see development accelerate. We are likely at or near the bottom of the cycle, but the recovery in development will be gradual and selective, not an immediate rebound.”

NIC MAP transactions data shows the rolling, four-quarter price per unit was $180,000 per unit in the first quarter of this year, the highest level in nearly four years. But for “high-quality assets,” acquisition pricing “still often looks more attractive than building new.”

“The gap is narrowing in select markets, but not enough to trigger a broad development wave,” Zahraoui told me. ”In many markets, buying quality assets is still relatively cheaper and faster than building quality assets. Speed to market is a priority for many investors today and the extended development cycle is prohibitive.”

The senior living industry faces the impact of tariffs, construction worker shortages and persistent cost pressures that will only temper the prospects of future growth in the near term, according to The Weitz Company, a national construction company that frequently builds senior living projects. A recent report from The Weitz Company states that growth this year will “remain subdued rather than accelerate.”

The Weitz Co. report also found that construction costs are expected to increase 3% to 4% annually, spurred by construction labor availability, tariffs and market concentration.

The development gap is widening and each year of suppressed construction activity places the industry further from where it should be in order to adequately meet incoming demand for senior living.

With the writing on the wall, it appears that the senior living industry continues to be at the mercy of macroeconomic factors for which the industry has little recourse other than focusing on building occupancy.

To me, this means the industry is stuck in a position where demand is strong but the math on new development still does not work in most cases. If this imbalance holds, the development and supply gap will only widen.

Operators turn inward while outward growth is tough

While a majority of senior living companies have not jumped back into development mode en masse, some have pivoted to stabilizing occupancy and reaching high census during a period of strong demand.

But reaching occupancy rates of 90% and above still comes with challenges to daily operations, including potential expense creep from added utility costs to additional food costs.

I believe there is a balance between maintaining high occupancy and managing the risk of rising operating expenses. Higher occupancy can improve revenue, but it also can bring new costs tied to staffing, utilities, food and services.

“As an industry, I think there is a tendency to see expense creep with higher occupancy, and it becomes a game of preserving that high occupancy,” Beztak Executive Vice President of Senior Living Jason Kohler recently told me.

To preserve occupancy and manage expenses, Beztak has focused on its staffing ratios within its senior living communities to reduce the need for adding staff later at high occupancy and facing increased expenses, Kohler told me.

Today, Farmington Hills, Michigan-based Beztak operates at an overall portfolio occupancy of 94%, with multiple communities at full census.

“The priority shifts to occupancy preservation and then to margin optimization,” Kohler told me.

The Aspenwood Company relies on equipping community leadership with dashboards capable of tracking various metrics tied to expense control and these efforts have helped preserve occupancy at stabilized communities. The Houston-based operator’s occupancy stands at 94%, according to Aspenwood Company President Heather Tussing.

“Investing in the right technology is one of the things that’s key,” Tussing told me regarding controlling expenses. “Having the right technology in place makes it more realistic for our leaders to do their jobs.”

Norwood, New Jersey-based Viva Senior Living uses a key performance indicator weekly report to monitor expenses “in real time,” Chief Operating Officer Chris Metternich told me.

“You need to be looking at your spenddowns in real time and making real-time adjustments to your spending,” Metternich told me.

But there are some examples of operators growing through new development with partners or parent companies that have the scale and track record to do so, including Charter Senior Living and Cedarhurst Senior Living. Both companies are charting a course for new development in areas that they know work for them, particularly in tertiary markets with limited competition, with the goal of being first to capture future senior living demand as supply remains limited.

Companies with development acumen and vertical integration also are having an easier time kickstarting new projects. One such company is American House, which recently took on full profit and loss responsibility from holding company REDICO. Earlier this week, CEO Dale Watchowski said that with the company’s longstanding development acumen, the cost of development and the cost of new acquisitions are growing closer. Now, American House is prepping for “aggressive” growth.

Similarly, senior living architecture firms have seen a wave of recent demand to ready new projects with a goal of getting them to the starting line in time to hit the gas as soon as they see the green light for growth.

But companies without a deep development bench or knowledge will face a harder reality over the next 18 to 24 months as they have fewer options for external growth.

While reaching high occupancy industrywide is a good sign of strong demand, I think it also shows that the industry is still missing out on a swath of new customers looking for senior living. The emphasis on occupancy and expense control reflects where many operators see the best opportunity for value creation in today’s environment.

Rather than taking on the risks associated with new development, providers are increasingly looking for operational efficiencies that can strengthen margins and cash flow.